OC1 Quiz Questions

An individual decides to go for a drive in a blizzard. He believes, because he has full coverage on his automobile, he will be covered if he has an accident due to recklessness. This would be an example of a: A) Morale Hazard B) Moral Hazard C) Physical Hazard D) Property Hazard

A) Morale Hazard

Which one of the following generates the most common type of liability claim? Choose one answer. A. Automobile B. Premises C. Products D. Workers compensation ID: 5845666

A. Automobile

A group of policies with a common characteristic, such as a territory or type of coverage, or all policies written by a particular insurer, producer, or agency is referred to as Choose one answer. A. A book of business. B. A coverage pool. C. A line of business. D. A policy group. ID: 5846782

A. A book of business.

Which one of the following is correct regarding captive programs? Choose one answer. A. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer. B. Under a rent-a-captive arrangement, no risk transfer occurs among the members, and the capital rented by one insured cannot be diminished by the losses of another insured in the structure. C. Risk retention groups were originally formed in direct response to the lack of workers compensation coverage available in insurance markets. D. In a protected cell company, each organization keeps its own premium and loss account, but a member may access the assets of another member in the event the member becomes insolvent. ID: 5854575

A. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer.

Which one of the following risk financing measures can reduce an organization's cost of risk over time, but has significant start-up costs relative to the other measures? Choose one answer. A. A captive plan B. A large deductible plan C. A retrospective rating plan D. A self insurance plan ID: 5854570

A. A captive plan

Which one of the following statements is true with regard to property claims for commercial structures? Choose one answer. A. A commercial structure is more likely than a personal residence to significantly depreciate due to factors other than wear and tear. B. The depreciation amount recorded in a policyholder's financial records for a structure can be relied upon as being accurate. C. One of a claim adjuster's primary duties when adjusting property claims for commercial structures is to engage a contractor to perform reconstruction. D. A claim adjuster is obligated to resolve disputes between mortgageholders and owners of commercial structures regarding whether to rebuild or not. ID: 5845754

A. A commercial structure is more likely than a personal residence to significantly depreciate due to factors other than wear and tear.

When considering global expansion, which one of the following offers a low-risk approach to quickly entering a new market? Choose one answer. A. A strategic alliance B. Merger C. Acquisition of a subsidiary D. A joint venture ID: 5897761

A. A strategic alliance

To be successful, the differentiation business-level strategy must Choose one answer. A. Accurately determine customers' preferences to develop products perceived as distinctive. B. Produce short-term profits while phasing out a product line or existing market. C. Focus on one group of customers and offer a low-price product or service. D. Seek efficiency in all areas of operation to build a competitive advantage. ID: 5848175

A. Accurately determine customers' preferences to develop products perceived as distinctive.

The optimal balance between retention and transfer varies for each organization, depending on specific characteristics. Which one of the following statements is true with regard to these characteristics? Choose one answer. A. All else being equal, the more risk control an organization undertakes, the more likely its ability to fund the retention of the affected exposures. B. Financially secure organizations do not face the risk of short-term liquidity problems by retaining significant losses. C. An organization is seldom better able to retain, rather than transfer, the loss exposures related to its core operations. D. All else being equal, the more diversified an organization's loss exposures, the greater its need to transfer loss exposures. ID: 5858968

A. All else being equal, the more risk control an organization undertakes, the more likely its ability to fund the retention of the affected exposures.

With products liability, any explicit statement about the product that accompanies the sale is known as Choose one answer. A. An express warranty. B. A breach of contract. C. An assumption of liability. D. A warranty. ID: 5845674

A. An express warranty.

Which one of the following statements is true? Choose one answer. A. An increase in supply will soften the market. B. Capacity is the total amount of risk that insurers are willing to assume. C. The demand for insurance has a much greater effect on the underwriting cycle than does the supply. D. The demand for insurance is similar to the demand for most other products in that it is very elastic. ID: 5844641

A. An increase in supply will soften the market.

Which one of the following correctly describes a capital market instrument used by insurers to finance risk? Choose one answer. A. An industry loss warranty is an insurance-linked security that covers the primary insurer in the event that the industry-wide loss from a particular catastrophe exceeds a predetermined threshold. B. Finite risk reinsurance is a type of reinsurance in which the reinsurer's liability is limited and anticipated investment income is expressly acknowledged as an underwriting component. C. Under a catastrophe risk exchange, a bond is issued with the condition that if the issuer suffers a catastrophe greater than a specified amount, the obligation to pay interest and/or repay principal is deferred or forgiven. D. A catastrophe risk exchange is an agreement that gives the primary insurer the right to a cash payment from investors if a specified index of catastrophe losses by geographic area reaches a specified level. ID: 5857878

A. An industry loss warranty is an insurance-linked security that covers the primary insurer in the event that the industry-wide loss from a particular catastrophe exceeds a predetermined threshold.

The Five Forces Model is a commonly used method of Choose one answer. A. Analyzing the competitive environment. B. Measuring the company's financial, physical, and human assets. C. Monitoring corporate goals. D. Benchmarking strengths of management team against competition. ID: 5897760

A. Analyzing the competitive environment.

Besides referring to the standard itself, which one of the following facts should an actuary also disclose when issuing communications under Actuarial Standard of Practice No. 41 (ASOP No. 41)? Choose one answer. A. Any material judgment adjustments that the actuary applied to the data to allow the actuary to perform the analysis. B. Whether the actuary reviewed the limitations on the use of material judgment adjustments. C. The extent material judgment adjustments to the actuary's work product were not considered. D. Any limitations on unresolved concerns the actuary may have on material judgment adjustments. ID: 5857752

A. Any material judgment adjustments that the actuary applied to the data to allow the actuary to perform the analysis.

A manufacturer that elects to discontinue a particular product due to potential liability loss exposures is practicing which one of the following risk control techniques? Choose one answer. A. Avoidance B. Loss prevention C. Loss reduction D. Separation ID: 5841363

A. Avoidance

The owners of Olivia Fuel Oil, Inc., (OFO) see no need to purchase crime insurance. Because most customers pay by credit card or check, OFO's bookkeeper, Erin, handles very little cash. Erin, a conscientious, detail-oriented employee who has missed only one day of work during the past 10 years, personally handles all bank deposits and disbursements. Which one of the following statements concerning OFO's crime exposures is true? Choose one answer. A. Because she handles all financial transactions, Erin is well positioned to steal from OFO. B. Because Erin handles very little cash, controls to minimizing employee dishonesty losses are not warranted. C. In the event that Erin did steal from OFO, the theft would be visible and detected very quickly. D. The bulk and weight of OFO's product make it especially susceptible to a robbery. ID: 5847674

A. Because she handles all financial transactions, Erin is well positioned to steal from OFO.

Which one of the following is true regarding business income coverage under the BOP? Choose one answer. A. Business income coverage under the BOP is writen on an actual loss sustained basis. B. The dollar limit of business income coverage under the BOP is relatively high. C. Business income coverage under the BOP is identical to that of the separate ISO policy. D. Hurricane Katrine demonstrated that the BOP insurance income coverage dollar limits were often inadequate. ID: 5857760

A. Business income coverage under the BOP is writen on an actual loss sustained basis.

Which one of the following statements is correct? Choose one answer. A. By exercising sound risk control, organizations fulfill occupational safety and health standards and comply with local, state, and federal laws. B. All states require insurers to provide a minimum level of risk control services to commercial policyholders. C. Policyholders generally consider an insurer's risk control recommendations to be a source of unnecessary expenses and a financial burden. D. While risk control services benefit insurers and policyholders, they have little or no impact on society as a whole. ID: 5847070

A. By exercising sound risk control, organizations fulfill occupational safety and health standards and comply with local, state, and federal laws.

Which one of the following provides an effective mechanism for initiating dialogue with an organization's board and senior executives about establishing enterprise-wide risk management (ERM) goals as part of the strategic management process? Choose one answer. A. COSO II B. Basel II C. ISO 31000:2009 D. Solvency II ID: 5853794

A. COSO II

An insurer's core functions are marketing and distribution, underwriting, and Choose one answer. A. Claims. B. Actuarial. C. Information technology. D. Risk control. ID: 5857001

A. Claims.

Code-as-rated means that the insurer should Choose one answer. A. Code those data elements that are variables in rating the coverage. B. Code all data elements for all policies. C. Code the data elements for policies in a separate process from the rating process. D. Code a policy only after it has been rated. ID: 5857712

A. Code those data elements that are variables in rating the coverage.

The risk control service of conducting a physical survey consists of Choose one answer. A. Collecting underwriting information on a customer's loss exposures. B. Submitting written recommendations to a business owner or manager. C. Implementing a safety management program designed by senior risk control consultants. D. Implementing a service contract with the business owner or manager. ID: 5844213

A. Collecting underwriting information on a customer's loss exposures.

In testing for data reasonableness, a distributional edit review Choose one answer. A. Compares key field data to a profile of data from prior experience. B. Measures the extent to which the system detects and corrects errors. C. Compares the premium and loss volumes by the highest order data variable to each other. D. Checks that the totals from one source match the totals from a reliable source. ID: 5857663

A. Compares key field data to a profile of data from prior experience.

The first step in integrating enterprise-wide risk management (ERM) with strategic planning is to Choose one answer. A. Consider goals for ERM as part of the organization's business model. B. Identify threats to achieving organizational goals. C. Determine the criticality of the risks to the organization in order to prioritize risks for treatment. D. Direct an examination of internal and external threats to the organization's mission, strategies, and goals. ID: 5853302

A. Consider goals for ERM as part of the organization's business model.

Which one of the following is typically a post-loss risk management goal? Choose one answer. A. Continuity of operations B. Legality C. Economy of operations D. Tolerable uncertainty ID: 5852939

A. Continuity of operations

Which one of the following statements is correct? Choose one answer. A. Contractors must usually provide evidence of liability insurance before a construction contract is granted. B. Insurers generally do not provide incentives to organizations to implement risk control measures. C. Insurance policies typically cannot be used to provide evidence of financial resources. D. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds. ID: 5847927

A. Contractors must usually provide evidence of liability insurance before a construction contract is granted.

In the claim function, supporting the insurer's profit goal is accomplished through Choose one answer. A. Controlling expenses. B. Resisting meritorious claims. C. Underpaying claims. D. Providing prompt, equitable service the policyholders. ID: 5845165

A. Controlling expenses.

Jancy Insurance Company (Jancy) has been very successful at writing homeowners insurance for over ten years. In an effort to grow its personal auto book, Jancy is offering all current homeowners policyholders a 15 percent discount on their personal auto premium. This is an example of which one of the following applications for predictive analytics? Choose one answer. A. Cross-selling B. Geographic segmentation C. Predictive analytics D. Individualized customer support ID: 5857436

A. Cross-selling

Which one of the following planned retention funding measures is the least formal and the least expensive to administer? Choose one answer. A. Current expensing of losses B. Using an unfunded reserve C. Using a funded reserve D. Borrowing funds ID: 5841778

A. Current expensing of losses

Which one of the following statements is correct with respect to insurers' use of the Internet as a distribution channel? Choose one answer. A. Customers will assume that insurance purchased over the Internet is less expensive. B. Customers who do not understand insurance will no longer need explanations or advice if they use the Internet. C. The ability to access competitor information is reduced for customers via use of the Internet. D. The amount of information available on the Internet has shifted customer focus toward service rather than price. ID: 5846681

A. Customers will assume that insurance purchased over the Internet is less expensive.

Risk management program goals are typically divided into pre-loss goals and post-loss goals. Pre-loss goals Choose one answer. A. Describe an organization's need to meet responsibilities as an ongoing operation. B. Should be in place in the event of a significant loss. C. Broadly describe the degree of recovery that an organization will strive to reach in the event of a loss. D. Typically include survival, earnings stability, and continuity of operations. ID: 5852940

A. Describe an organization's need to meet responsibilities as an ongoing operation.

Ranji is a commercial underwriter. She is evaluating an application for employee dishonesty coverage submitted on behalf of a grocery store. The company carefully screens new hires and checks references. Seasoned employees are thoroughly evaluated prior to any promotion. A substance-abuse screening program is in place. Termination procedures are well defined. Bank reconciliations are done to ensure that company and bank records agree. Periodic audits are conducted and employees monitor one another via a division of authority. Annual vacations are required. Duties are rotated and dual control systems are in place on the vault, cash, and other items susceptible to theft. Bank deposits are always made by two employees, and management selects two different employees each day. Which one of the following ratings would Ranji most probably give to this risk? Choose one answer. A. Desirable B. Average C. Undesirable D. Highly undesirable ID: 5847065

A. Desirable

The purpose of underwriting is to Choose one answer. A. Develop and maintain a profitable book of business for the insurer. B. "Pre-qualify" or field underwrite applicants. C. Maximize the impact of adverse selection on the portfolio. D. Compile information to develop a profile of loss exposures. ID: 5843867

A. Develop and maintain a profitable book of business for the insurer.

The federal Commercial Motor Vehicle Safety Act (CMVSA) of 1986 requires that Choose one answer. A. Drivers of specific large vehicles hold a commercial driver's license (CDL). B. Vehicles be rated according to the individual weight and size of each unit. C. Truckers develop and implement a fleet safety program. D. Commercial vehicles be classified according to the ISO Commercial Lines Manual (CLM) rules. ID: 5844808

A. Drivers of specific large vehicles hold a commercial driver's license (CDL).

Achieving any post-loss goal involves expending risk management resources, which may conflict with the pre-loss goal of Choose one answer. A. Economy of operations. B. Earnings stability. C. Social responsibility. D. Tolerable uncertainty. ID: 5852950

A. Economy of operations.

As the number of members in a pool increases, on a per member basis the Choose one answer. A. Expected value of losses remains unchanged. B. Probability of making a payment increases. C. Uncertainty regarding losses increases. D. The standard deviation remains unchanged. ID: 5847973

A. Expected value of losses remains unchanged.

Which one of the following is the term used for reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted? Choose one answer. A. Facultative reinsurance B. Treaty reinsurance C. Per risk excess of loss D. Per occurrence excess of loss ID: 5890133

A. Facultative reinsurance

Which one of the following statements is correct regarding government involvement in insurance? Choose one answer. A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. B. Most organizations obtain workers' compensation insurance through federal or state insurance programs. C. Government insurance plans typically incur significant costs in marketing and sales commissions. D. Legislators find it more straightforward to invite and analyze bids from private insurers than to establish government plans. ID: 5842811

A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases.

Which one of the following statements is correct with respect to underwriting workers compensation insurance? Choose one answer. A. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency. B. An insured's providing healthcare benefits is not related to its workers compensation exposure. C. On-premises hazards relating to housekeeping and maintenance are rare. D. All firms in the same industry generally have the same hazards and level of risk. ID: 5847209

A. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

In a single-business company, which one of the following organizational structures might be the most suitable? Choose one answer. A. Functional structure B. Profit-center structure C. Divisional structure D. Centralized structure ID: 5846297

A. Functional structure

Which one of the following statements is correct with respect to evaluating the efficiency of alternative risk control measures? Choose one answer. A. Given a loss exposure and alternative risk control measures, the risk management professional can determine which is most efficient by using cash flow analysis. B. The efficiency of various risk control measures is usually determined based on both quantitative and qualitative standards. C. An advantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that it considers nonfinancial goals and selection criteria. D. A disadvantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that the basis of comparison varies for each value-maximizing decision. ID: 5841370

A. Given a loss exposure and alternative risk control measures, the risk management professional can determine which is most efficient by using cash flow analysis.

Premises liability refers to liability created by Choose one answer. A. Having visitors to an organization's premises. B. State statutes to cover employees for work-related injuries on premises. C. Work completed on another organization's premises. D. Products manufactured on an organization's premises. ID: 5841380

A. Having visitors to an organization's premises.

Matheson Construction is a residential construction company that specializes in building subdivisions. The company owns four late-model private passenger vans that it uses to transport workers to and from job sites each day. The distance one-way is generally less than 30 miles. During the day, the vans generally sit idle at the job site, unless there are supplies to pick up or other errands to run. Only the job superintendents are allowed to drive the vans, and only if they keep their driving records clean. The company carefully monitors the job superintendents' driving records and requires them to participate in driver safety training programs annually. The company has a stringent inspection and maintenance program for the vehicles as well. In the seven years since the company began transporting workers in this way, there have been no automobile accidents. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? Choose one answer. A. Highly Desirable B. Desirable C. Average D. Undesirable ID: 5847207

A. Highly Desirable

Which one of the following statements is correct with regard to property loss exposures? Choose one answer. A. Homes can be grouped into classes that face essentially the same loss potential. B. Commercial property exposures are easier to group into classes than individual homes. C. When insuring homes, insurers need not avoid excessive concentration of loss exposures. D. The property loss exposures associated with residential fires are not ideally suited to insurability. ID: 5842799

A. Homes can be grouped into classes that face essentially the same loss potential.

Which one of the following statements is correct with respect to SWOT analysis? Choose one answer. A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets. B. Managers use SWOT analysis to predict the future state of their companies. C. SWOT analysis considers a company's internal environment rather than the external environment. D. Customers are generally not considered in a SWOT analysis because the focus is on the assets an organization owns. ID: 5846286

A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets.

Which one of the following statements is correct with respect to the use of SWOT analysis to analyze the competitive environment? Choose one answer. A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets. B. Managers use SWOT analysis to predict the future state of their companies. C. Managers consider factors in the general environment rather than the task environment when conducting a SWOT analysis. D. Customers are generally not considered in a SWOT analysis because the focus is on the assets an organization owns. ID: 5859785

A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets.

When the investigation has been completed and all documentation has been received, the claim representative must decide whether to pay the claim or deny it. Which one of the following statements is correct with respect to this element of claim handling? Choose one answer. A. If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation. B. To deny a claim, a claim representative need only verbally inform the insured that no payment will be made. C. Because of the variety of alternative dispute resolution methods available, very few claims are concluded through litigation. D. State insurance regulations typically prohibit an insurer from advising an insured of the reason for a claim denial. ID: 5890095

A. If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation.

Which one of the following statements is correct? Choose one answer. A. If an insurer cannot provide the insurance product at a reasonable premium, there will be no demand. B. Loss exposures involving only small losses are generally considered to be insurable. C. Generally, the characteristics of ideally insurable loss exposures are unrelated to the premium that must be charged. D. The expense of providing insurance decreases with the frequency of claims because of economies of scale. ID: 5854790

A. If an insurer cannot provide the insurance product at a reasonable premium, there will be no demand.

Which one of the following is a common type of error in the data collection step of the insurance data life cycle? Choose one answer. A. Input errors B. Wrong model choice C. Inconsistencies D. Interpretation errors ID: 5857605

A. Input errors

A prerequisite to asserting a claim under a property insurance policy is which one of the following types of interest in the policy? Choose one answer. A. Insurable B. Loss payee C. Tenant's D. Contractual ID: 5845332

A. Insurable

Which one of the following statements is true? Choose one answer. A. Insurers benefit from insurance to value because it promotes higher limits of property insurance. B. The insurable value of a building is the same as the building's book value. C. The coinsurance clause in a property policy encourages insurance to value through premium discounts. D. Adequate limits of insurance on new business ensure ongoing insurance to value. ID: 5844164

A. Insurers benefit from insurance to value because it promotes higher limits of property insurance.

Which one of the following statements is true concerning premium audits? Choose one answer. A. Insurers conduct premium audits to determine correct policy premiums. B. Insurers perform premium audits for only two coverages-workers compensation and commercial general liability. C. Insurance premium auditors follow arbitrary processes for each audit. D. Insurers perform premium audits because business owners do not submit payrolls to the insurers. ID: 5844903

A. Insurers conduct premium audits to determine correct policy premiums.

For insurance and traditional risk management purposes, loss exposures are typically divided into four types. Which one of the following lists those four types? Choose one answer. A. Property, liability, personnel, and net income B. Environmental, professional, property, and liability C. Property, employers liability, net income, and environmental D. Property, workers compensation, personnel, and net income ID: 5852888

A. Property, liability, personnel, and net income

Which one of the following best describes the conclusion of the General Insurance Research Organization (GIRO) Data Quality Working Party study? Choose one answer. A. Insurers should dedicate increased resources toward the reliability and completeness of data. B. Insurers currently dedicate sufficient resources toward the reliability and completeness of data. C. Because of regulatory oversight, data quality is sufficiently addressed by insurers at the present time. D. Data quality issues do not need to be a focus of senior insurance company management. ID: 5857710

A. Insurers should dedicate increased resources toward the reliability and completeness of data.

Riko is an automobile claim representative who has been assigned a claim submitted by John. John owns a Honda Civic, which is insured in his name for liability, collision, and comprehensive coverage on a Personal Auto Policy (PAP). He is the only named insured on the policy. John lives with his parents and his sister, Carla. One Saturday, while John is asleep, Carla borrows his car to run errands. Unfortunately she backs into the concrete base of a sign at the mall, damaging the vehicle. Riko confirms that the Honda is the covered vehicle, that it is insured against collision, and that the loss occurred during the policy period. Which one of the following will she most likely determine next? Choose one answer. A. Is Carla covered as a driver of the damaged vehicle? B. Does any other insurance apply to this loss? C. Is the mall parking lot a covered location? D. Does the loss meet the policy definition of "collision"? ID: 5890174

A. Is Carla covered as a driver of the damaged vehicle?

The transaction effective date in an Insurance Services Office (ISO) statistical plan Choose one answer. A. Is the date on which coverage begins or changes. B. Is the date on which the record representing the transaction is generated or coded. C. Is the date on which coverage ends. D. Is the date on which the transaction was entered in the insurer's financial books. ID: 5857803

A. Is the date on which coverage begins or changes.

Which one of the following best explains the term "residual uncertainty"? Choose one answer. A. It is the level of risk that remains after implementing risk management plans. B. It is the difference between estimated subjective risk and calculated objective risk. C. It is the amount invested in risk management in order to eliminate concern. D. It is uncertainty regarding the value of any residual salvage that would remain after a loss. ID: 5840792

A. It is the level of risk that remains after implementing risk management plans.

Which one of the following statements is true with regard to the selection of appropriate risk financing measures? Choose one answer. A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations. B. Diversifying loss exposures tends to reduce the accuracy of loss estimates, and increases the uncertainty regarding future losses. C. An organization that undertakes extensive risk control measures is less likely to have the ability to fund retention of its loss exposures. D. The higher an organization's willingness to accept risk, the higher the likelihood that transfer will be used to cover its loss exposures. ID: 5841789

A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations.

If an error in a premium audit is detected, the rating bureau cannot calculate the correct experience modification until Choose one answer. A. It receives the correct audit data. B. A re-audit is approved by the state insurance commissioner. C. The auditor satisfies a 30 day waiting period. D. The insured is notified of the nature and extent of the error. ID: 5856740

A. It receives the correct audit data.

Which one of the following statements is correct with respect to underwriting umbrella liability insurance? Choose one answer. A. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy. B. Umbrella policy underwriters need not concern themselves with the specific coverage provided under the underlying policies or endorsements. C. If the insurer providing the underlying coverage is unable to defend a claim, the umbrella insurer is relieved of its duty to do so. D. Umbrella liability insurance policies are generally written with relatively low limits because they are excess of underlying coverage. ID: 5847213

A. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy.

Which one of the following presents a challenge in adjusting a residential personal property claim? Choose one answer. A. It's often difficult to determine that the property existed and was lost. B. Scheduled coverage requires the adjuster to replace rather than repair the property. C. Scheduled coverage is usually more restrictive in terms of causes of loss covered. D. The insured is not required to prepare an inventory for property that was stolen. ID: 5845430

A. It's often difficult to determine that the property existed and was lost.

When two or more individuals who are not spouses have a complete, indivisible interest in property, that type of ownership is referred to as Choose one answer. A. Joint ownership. B. Exclusive ownership. C. Tenancy by entireties. D. Ownership in common. ID: 5844976

A. Joint ownership.

JNL Construction is a general contractor. As the risk management professional for JNL, Marie should be aware of the company's contractual obligations, as well as the contractual obligations that others owe JNL. This knowledge is necessary for Marie to meet which one of the following pre-loss risk management goals? Choose one answer. A. Legality B. Social responsibility C. Tolerable uncertainty D. Continuity of operations ID: 5852974

A. Legality

An insurance company needs to hire an employee with knowledge of insurance policy forms and the ability to relate policy provisions to the loss exposures of individual policyholders. The person will also prepare premium quotes and process cancellations. Which one of the following employees would best suit the company's needs? Choose one answer. A. Line underwriter B. Staff underwriter C. Producer D. Premium auditor ID: 5853439

A. Line underwriter

After a property claim is submitted, the insured is required to assist the adjuster with the loss adjustment process by Choose one answer. A. Providing an inventory of the damaged property. B. Repairing or replacing the damaged property before the adjuster arrives. C. Maintaining coverage during the claim settlement process. D. Explaining the circumstances in an examination under oath promptly after the loss. ID: 5848087

A. Providing an inventory of the damaged property.

Which one of the following statements is correct with respect to line underwriters? Choose one answer. A. Line underwriters can offer valuable technical assistance to an insured's risk manager and to the producer responsible for the account. B. Line underwriters formulate underwriting policy and develop underwriting guides. C. Line underwriters select and rate new business. They are not generally involved in the proposal or renewal process. D. Line underwriters focus on risk characteristics and need not be knowledgeable about policy forms and provisions. ID: 5846794

A. Line underwriters can offer valuable technical assistance to an insured's risk manager and to the producer responsible for the account.

Which one of the following statements is correct regarding the impact of loss adjustment expenses in the selection of reinsurance program retentions and limits? Choose one answer. A. Loss adjustment expenses are generally added to the loss amount and should be carefully considered when selecting retentions and limits. B. Primary insurers with a concentration in one geographic area must carefully consider loss adjustment expenses when selecting retentions and limits. C. Loss adjustment expenses are generally pro rated between the primary insurer and reinsurer, and applied on top of retentions and limits. D. Primary insurers are responsible for all loss adjustment expenses, and they generally have little impact on the retentions and limits selected. ID: 5920107

A. Loss adjustment expenses are generally added to the loss amount and should be carefully considered when selecting retentions and limits.

The second step in the risk management process is analyzing loss exposures. Which one of the following is true regarding this step? Choose one answer. A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step. B. Loss exposures that could interfere with the achievement of the organization's goals are identified in this step. C. A weakness of loss exposure analysis is that it is useful only for those types of losses that an organization has suffered in the past. D. A major strength of loss exposure analysis is that the process is generally inexpensive. ID: 5840839

A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.

Richley Auto is a chain of auto parts stores. It is experiencing a high frequency of auto accidents involving the delivery drivers, who are Richley employees. The management team has decided to require all drivers to attend a two day safety seminar offered by its franchiser. The safety seminar is an example of which one of the following risk control techniques? Choose one answer. A. Loss prevention B. Avoidance C. Separation D. Diversification ID: 5853901

A. Loss prevention

Which one of the following statements is correct with respect to employee dishonesty? Choose one answer. A. Losses can be hidden from discovery and large losses are common. B. Most employers are eager to have dishonest employees prosecuted. C. Employee dishonesty insurance is generally unprofitable for insurers. D. Most mercantile establishments purchase employee dishonesty insurance. ID: 5847061

A. Losses can be hidden from discovery and large losses are common.

Enterprise-wide risk management (ERM) will generally result in which one of the following? Choose one answer. A. Management by consensus B. Hierarchal management C. Top-down decision making D. Bottom-up decision making ID: 5853332

A. Management by consensus

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance? Choose one answer. A. Most treaties require that all loss exposures within the treaty's terms be reinsured. B. Primary insurers generally use facultative reinsurance as the foundation of their reinsurance program. C. Usually, primary insurers have only one reinsurance treaty with a single reinsurer. D. A primary insurer's underwriting policy and underwriting guidelines are usually developed by its treaty reinsurer. ID: 5857825

A. Most treaties require that all loss exposures within the treaty's terms be reinsured.

In an Insurance Services Office (ISO) statistical plan, the loss amount is reported Choose one answer. A. On a direct basis. B. On a net of reinsurance basis. C. On an IBNR basis. D. On an on-level earned premium basis. ID: 5857800

A. On a direct basis.

Concerning liability claim adjusting, which one of the following intangible factors of bodily injury is usually the largest component of damages? Choose one answer. A. Pain and suffering B. Loss of consortium C. Permanency and disfigurement D. Survival and wrongful death ID: 5845602

A. Pain and suffering

Which one of the following statements is correct regarding insurers' involvement in safety management programs for insureds? Choose one answer. A. Part of a risk control consultant's role in developing a safety management program is assisting the insured in establishing risk control goals. B. Risk control consultants are usually actively involved in implementing safety management programs. C. Once the safety management program is implemented, the risk control consultant generally is not able to provide technical assistance in the monitoring phase of the program. D. Risk control consultants typically have authority to exercise a management role in the insured's safety program. ID: 5847080

A. Part of a risk control consultant's role in developing a safety management program is assisting the insured in establishing risk control goals.

Which one of the following statements is correct with respect to premium audits? Choose one answer. A. Policyholders are far less likely to submit false or misleading information when they know it will be verified by a premium auditor. B. Premium audits are typically conducted by specially trained representatives of the state insurance department. C. Premium audits generally leave policyholders with the impression that the insurer is looking for ways to charge additional premiums. D. Premium audits focus strictly on accounting documents and rarely generate additional underwriting information about a policyholder. ID: 5897753

A. Policyholders are far less likely to submit false or misleading information when they know it will be verified by a premium auditor.

In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of Choose one answer. A. Possibilities. B. Uncertainties. C. Probabilities. D. Losses. ID: 5840769

A. Possibilities.

For a loss exposure to be ideally insurable it must be definite in Choose one answer. A. Time, cause, and location. B. Value, extent, and consequences. C. Duration, damage, and cost. D. Scope, origin, and coverage. ID: 5854780

A. Time, cause, and location.

The question "Is the location of the loss covered?" is a part of the framework for coverage analysis because the location where the loss occurred must be within the policy's territorial limits. The PAP includes which one of the following locations in the definition of policy territory? Choose one answer. A. Puerto Rico B. Europe C. Mexico D. Bermuda ID: 5860394

A. Puerto Rico

Insurance deals primarily with Choose one answer. A. Pure risks. B. Subjective risks. C. Speculative risks. D. Strategic risks. ID: 5856462

A. Pure risks.

The statement "There is a 5 percent chance that John will be injured in an automobile accident while driving to work tomorrow." is an example of Choose one answer. A. Quantifying risk. B. Verifying risk. C. Quantifying loss exposures. D. Identifying hazards. ID: 5840770

A. Quantifying risk.

In a soft market, insurers that loosen underwriting standards to increase insurance sales could be highly susceptible to harm from Choose one answer. A. Reductions in investment income. B. Increased producer representation. C. Investment obligation maturities. D. Cycle phases. ID: 5858880

A. Reductions in investment income.

Which one of the following is an actual step in the premium auditing process? Choose one answer. A. Reporting the audit findings B. Meeting regulatory requirements C. To deter and detect fraud D. Instill confidence with insureds ID: 5844915

A. Reporting the audit findings

Risk control can assist premium auditing by Choose one answer. A. Reporting the existence of new operations. B. Providing laboratory analyses. C. Designing product recall procedures. D. Developing safety management programs. ID: 5844189

A. Reporting the existence of new operations.

A commercial insurer has historically targeted small businesses. It is considering expanding its market to middle market organizations. To succeed, the insurer will need to develop a level of expertise in which one of the following areas? Choose one answer. A. Risk financing alternatives B. Auditing C. Regulatory controls D. Claims handling ID: 5857409

A. Risk financing alternatives

Managing an organization's cost of risk involves various categories of expenses. Commissions paid to an insurance broker would be considered which one of the following types of expense? Choose one answer. A. Risk financing expenses B. Statutory expenses C. Risk control expenses D. Administrative expenses ID: 5919944

A. Risk financing expenses

Aaron, a senior producer for Blithe Insurance Company (Blithe) has over 15 years experience in the field. He knows Blithe's underwriting guidelines and is familiar with the type of business Blithe wants. He takes pride in the loss ratio produced by his office and also produced by Blithe as a company. He often trains new agents in his office because of his low rejection ratio of applications he writes. He is known as a front-line underwriter for Blithe. Which one of the following is a benefit of Aaron's field underwriting? Choose one answer. A. Saves Blithe from having to evaluate accounts that they will ultimately reject B. Save Blithe training time spent on new underwriters C. Serves as a resource for Blithe on marketing climate D. Provides feedback to Blithe on underwriting procedures ID: 5897669

A. Saves Blithe from having to evaluate accounts that they will ultimately reject

Ed is a cattle owner who also owns land in a variety of counties. He relies on the proceeds from the sale of his cattle as his primary source of income. Ed makes the decision to disperse his herd over several locations as a means to limit the potential impact from a loss at a single location. The risk control technique Ed is employing is Choose one answer. A. Separation. B. Duplication. C. Diversification. D. Avoidance. ID: 5853082

A. Separation.

Which one of the following is both a pre-loss and a post-loss risk management goal for many organizations? Choose one answer. A. Social responsibility B. Tolerable uncertainty C. Legality D. Survival ID: 5852972

A. Social responsibility

One reason that primary insurers purchase reinsurance for catastrophes is to Choose one answer. A. Stabilize insurer earnings. B. Satisfy regulatory requirements for reinsurance. C. Reduce policyholders' surplus to acceptable levels. D. Increase large-line capacity. ID: 5878590

A. Stabilize insurer earnings.

A formal set of directions for recording and reporting insurance premiums, exposures, losses, and sometimes loss expenses to a statistical agent is a Choose one answer. A. Statistical plan. B. Statistical agent. C. Data element. D. Data definition. ID: 5857619

A. Statistical plan.

Which one of the following types of insurers are the most prevalent in the United States? Choose one answer. A. Stock insurers B. Mutual insurers C. Captive insurers D. Cooperative insurers ID: 5857010

A. Stock insurers

Business continuity management is primarily designed to meet which one of the following risk management goals? Choose one answer. A. Survival B. Tolerable uncertainty C. Social responsibility D. Growth ID: 5841390

A. Survival

Tania's Boardwalk Soda Shop (TBSS) is open year round but the majority of its sales occur during the summer months. The shop is staffed primarily by college students. TBSS operates out of a 2,000 square foot frame building that could be rebuilt in three months. Which one of the following statements concerning TBSS's business income exposure is true? Choose one answer. A. TBSS could suffer a severe business income loss from a relatively short shutdown. B. The amount of time required to rebuild the shop does not affect the business income loss exposure. C. The use of college students to staff the shop creates a bottleneck exposure. D. The size of any business income loss that TBSS could suffer is directly related to the size of the direct damage loss. ID: 5847673

A. TBSS could suffer a severe business income loss from a relatively short shutdown.

Which one of the following is an underwriting evaluation tool that uses Global Positioning System (GPS) tracking to collect and analyze data regarding driver behavior and vehicle use? Choose one answer. A. Telematics B. Predictive analytics C. Predictive modeling D. Catastrophe modeling ID: 5889994

A. Telematics

Three specific ratios are used to measure an insurer's underwriting performance: the loss ratio, the expense ratio, and the Choose one answer. A. Trade basis combined ratio. B. Investment income ratio. C. Overall operating ratio. D. Retention ratio. ID: 5897458

A. Trade basis combined ratio.

Which one of the following entities consists of national risk management associations, individual risk managers from Central European countries, and representatives from health organizations, educational sectors and public sectors? Choose one answer. A. The Federation of European Risk Management Associations (FERMA) B. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) C. The Basel Committee on Banking Supervision D. The British Standards Institution (BSI) ID: 5853340

A. The Federation of European Risk Management Associations (FERMA)

Mellfor Hall, constructed in the 1930's as a summer residence in a rural area, is currently occupied by the offices of an accounting firm. There is just one building on the multi-acre property, and the area immediately surrounding the structure is free of shrubs. The area in front of the building is a parking lot for employees and visitors. The structure was altered from its original design to be suitable as an office building. The building is fire-resistive, and the public protection class (PPC) is 3. Given this information, which one of the following statements is true concerning the physical hazards presented by Mellfor Hall from a fire underwriting standpoint? Choose one answer. A. The alterations made to the original building may have left unprotected openings in Mellfor Hall's firestops. B. Because Mellfor Hall is an office, it is considered a relatively high-hazard occupancy. C. From an external loss exposure standpoint, Mellfor Hall presents a significant hazard. D. Mellfor Hall is located too far from an adequate water supply for the purposes of fire suppression. ID: 5847667

A. The alterations made to the original building may have left unprotected openings in Mellfor Hall's firestops.

Concerning liability claim adjusting, which one of the following determines coverage? Choose one answer. A. The claimant's allegations B. The insured's contractual obligations C. The proximate cause of loss D. The insured's intentional acts ID: 5845603

A. The claimant's allegations

Which one of the following costs is part of the overall financial consequences of risk? Choose one answer. A. The cost of the value lost due to events that caused a loss B. The cost of purchasing an asset C. The cost of benchmarking surveys D. The cost of losses reimbursed by insurance ID: 5919366

A. The cost of the value lost due to events that caused a loss

An office and a restaurant are tenants in a building. The building construction is fire-resistive, and ISO has assigned it a public protection class (PPC) of 9. It is surrounded by an open area for parking, and is equipped with a sprinkler system. Due to the cooking operations, greasy soot accumulates in vents and flues over the cooking stoves in the restaurant. Based on these facts, which one of the following statements is true concerning the exposure this building presents? Choose one answer. A. The fire resistive construction of this building is the best type of construction to prevent damage from most causes of loss. B. From an occupancy standpoint, this building risk does not present a significant hazard. C. The PPC rating of 9 indicates that the property is located close to an adequate water supply for the purposes of fire suppression. D. From an external loss exposure standpoint, this building risk presents a significant hazard. ID: 5846892

A. The fire resistive construction of this building is the best type of construction to prevent damage from most causes of loss.

All of the following statements are true regarding the factors affecting the formation of an insurer's underwriting policy, EXCEPT: Choose one answer. A. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings. B. Return-on-equity thresholds guide insurers in deciding where to allocate capital. C. Insurers are subject to penalties from the states if they deviate from filed forms or rates. D. The availability and cost of adequate reinsurance can influence underwriting policy. ID: 5858608

A. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings.

Pooling arrangements reduce the most risk to the group when Choose one answer. A. The loss exposures being pooled are independent of one another. B. The size of the pool is limited. C. The loss exposures in the pool are geographically concentrated. D. The risk of loss for pool members is perfectly positively correlated. ID: 5855157

A. The loss exposures being pooled are independent of one another.

Sugartown Insurance has had several highly profitable years recently and accumulated a sizable surplus. Sugartown is now initiating a market plan to increase market share by competing on price. If enough of Sugartown's competition follows this strategy, what will be the likely immediate effect? Choose one answer. A. The market will soften. B. Industry loss ratios will decline. C. The underwriting cycle will stabilize. D. New competition will enter the market. ID: 5844694

A. The market will soften.

Which one of the following statements is true regarding avoidance as a risk control technique? Choose one answer. A. The most effective way of managing any loss exposure is to avoid the exposure completely. B. The aim of avoidance as a risk control technique is solely to reduce loss frequency. C. Avoidance is used as a method to isolate loss exposures from one another. D. Complete avoidance is the most common risk control technique. ID: 5853076

A. The most effective way of managing any loss exposure is to avoid the exposure completely.

In reference to products liability claims investigation, the issue of interest when strict liability is involved is Choose one answer. A. The nature of the product. B. An unsafe act on the premises. C. An unsafe condition on the premises. D. The behavior of the defendant. ID: 5845680

A. The nature of the product.

Which one of the following statements is correct with respect to transfer's ability to meet risk financing goals? Choose one answer. A. The primary benefit of transfer is certainty regarding the ability to pay losses. B. Transfer is less effective than retention in managing cash flow variability. C. Transfer increases the level of liquidity that an organization requires. D. The primary benefit of transfer is that it allows an organization to manage its cost of risk. ID: 5841785

A. The primary benefit of transfer is certainty regarding the ability to pay losses.

A property location's probable maximum loss (PML) is Choose one answer. A. The underwriter's estimate of the largest loss likely to occur. B. The loss expected under normal operating conditions with all fire protection services working. C. Calculated excluding the effects of building features that impede the vertical spread of fire. D. The amount of insurance carried on the location. ID: 5857875

A. The underwriter's estimate of the largest loss likely to occur.

One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are Choose one answer. A. Traditionally managed by risk management professionals. B. Speculative risks that fall outside the operational risk category. C. Traditionally handled by the chief financial officer. D. Fundamental to an organization's existence and business plans. ID: 5880535

A. Traditionally managed by risk management professionals.

Which one of the following statements is true regarding Statistical Plans? Choose one answer. A. Transaction-based plans better support the business need for data. B. Summary-based plans provide the most accurate data for actuarial-related purposes. C. Transaction-based plans collect loss data only when a claim is closed. D. Summary-based plans do not provide enough detail for regulatory reporting purposes. ID: 5857716

A. Transaction-based plans better support the business need for data.

Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk? Choose one answer. A. Uncertainty of outcome B. Likelihood of injury or damage to property C. Probability of financial loss D. Opportunity for profit ID: 5851887

A. Uncertainty of outcome

Premium auditing contributes most directly to Choose one answer. A. Underwriting. B. Marketing and sales. C. Claims. D. Risk control. ID: 5856779

A. Underwriting.

An underwriter may accept a submission as is, reject the submission, or make a counteroffer to accept the submission subject to modifications. Which one of the following statements is correct with respect to these modifications? Choose one answer. A. Using a different rating plan can provide pricing flexibility so that the underwriter can properly price a submission based on its loss exposures. B. Because insurers are unable to verify whether or not an applicant has implemented risk control measures, counteroffers cannot require them. C. Treaty reinsurance is used by underwriters to reinsure classes of business with atypical loss exposures. D. Amendments to policy terms and conditions are prohibited by state regulation as a means for an insurer to make a counteroffer. ID: 5889995

A. Using a different rating plan can provide pricing flexibility so that the underwriter can properly price a submission based on its loss exposures.

Crimson Casualty Company began insurance operations last year. The company experienced phenomenal success and wrote far more premiums than expected. A representative from the state insurance department contacted Crimson Casualty and warned the company that it was growing too fast and risking insolvency. The insurance regulator added, "Of course you can use reinsurance to help remedy your situation." The regulator was referring to which one of the following functions of reinsurance? Choose one answer. A. Using reinsurance to provide surplus relief B. Using reinsurance to stabilize loss experience C. Using reinsurance to protect against catastrophic losses D. Using reinsurance to provide large-line capacity ID: 5842726

A. Using reinsurance to provide surplus relief

Which one of the following statements is true concerning negotiating and settling claims? Choose one answer. A. When the value of a claim approaches or exceeds the insured's policy limit, settlement becomes a legal obligation. B. The insured, rather than the insurer, controls the defense and claim settlement, and therefore is expected to make the first demand. C. Negotiating claims is seen as a weakness to both adjusters and attorneys. D. The majority of liability claims that are settled use structured settlements. ID: 5845636

A. When the value of a claim approaches or exceeds the insured's policy limit, settlement becomes a legal obligation.

Insurer B (IB) notifies one of its independent agents that its agency contract will be terminated unless the agency improves its hit (or success) ratio during the next 90 days. This indicates that IB has Choose one answer. A. Written too few of the accounts it quoted for the agency. B. Renewed too few of the accounts the agency wrote with IB in the past year. C. A higher-than-expected loss ratio with the agency. D. Less restrictive underwriting selection criteria than other insurers the agency represents. ID: 5859364

A. Written too few of the accounts it quoted for the agency.

Two individuals each have a 75 percent probability of not suffering a homeowners loss in a given year. Assuming that losses involving these two homes are independent of one another, and that the two individuals enter into a pooling arrangement, which one of the following represents the probability of neither individual suffering a loss? Choose one answer. A. .00 B. .56 C. .75 D. 1.5 ID: 5847972

B. .56

At a minimum, in the enterprise-wide risk management (ERM) process, an organization should identify how many of its top risks for consideration of their likelihood, to target them for treatment and monitoring? Choose one answer. A. 3 B. 5 C. 6 D. 7 ID: 5853303

B. 5

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $16,500,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP approach, which one of the following is Argot's return on equity? Choose one answer. A. 5% B. 6% C. 18% D. 20% ID: 5897672

B. 6% (net income/owners' equity for GAAP approach, net income/average policyholders' suprlus for SAP approach)

At year-end, SBC Insurance Company posted the following results: Incurred losses - $18 million Loss adjustment expenses - $2 million Underwriting expenses - $5 million Written premiums - $26 million Earned premiums - $24 million Based upon the company's year-end results, which one of the following represents SBC's loss ratio? Choose one answer. A. 75% B. 83% C. 96% D. 104% ID: 5822734

B. 83% (loss+LAE/earned premiums)

Which one of the following insurance customers is most likely to obtain coverage through a surplus lines broker? Choose one answer. A. An 18-year-old seeking personal auto insurance B. A drug manufacturer seeking umbrella liability insurance C. A homeowner seeking flood insurance D. A contractor seeking workers compensation insurance ID: 5857426

B. A drug manufacturer seeking umbrella liability insurance

Which one of the following is a noninsurance risk transfer measure? Choose one answer. A. A finite risk plan B. A hold-harmless agreement C. A large deductible plan D. A rent-a-captive arrangement ID: 5854576

B. A hold-harmless agreement

Which one of the following statements is true concerning the premium auditing process? Choose one answer. A. An examination of the insured's books and records at the insured's premises is referred to as a voluntary audit. B. A premium auditor's job involves not only counting loss exposures, but also classifying them correctly. C. The definition of "employee" is the same for both workers compensation and general liability policies when the premium base is payroll. D. The process the premium auditor uses is known as auditing the policy because the focus is on the exposures identified on the policy. ID: 5844929

B. A premium auditor's job involves not only counting loss exposures, but also classifying them correctly.

If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire Choose one answer. A. An independent adjuster. B. A public adjuster. C. A senior claim representative. D. A public defender. ID: 5832642

B. A public adjuster.

Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? Choose one answer. A. Risk classifications are mutually exclusive, and only one can be applied to any given risk. B. A pure risk is a chance of loss or no loss, but no chance of gain. C. Insurance deals primarily with speculative risk, rather than with pure risk. D. Usually, pure risks and speculative risks can be managed using the same techniques. ID: 5840778

B. A pure risk is a chance of loss or no loss, but no chance of gain.

Which one of the following best defines the term "direct writing reinsurer"? Choose one answer. A. A reinsurer that writes narrowly defined classes of business as directed by state insurance regulators B. A reinsurer whose employees deal directly with primary insurers C. A reinsurer that writes business under the direction of a reinsurance intermediary D. A reinsurer that sells reinsurance coverage directly to the insured ID: 5832195

B. A reinsurer whose employees deal directly with primary insurers

An example of an intangible asset that an individual may possess is Choose one answer. A. An investment portfolio. B. A unique skill set. C. Money that is owed to them. D. A rental property. ID: 5879864

B. A unique skill set.

Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? Choose one answer. A. Percentage of recovery from subrogation B. Accurate evaluation of insured's liability C. Average claim settlement value by claim type D. Accuracy and completeness of data entry ID: 5832644

B. Accurate evaluation of insured's liability

Anil has his automobile insured with ABC Insurance through his agent, Chad. Returning to his car in a shopping mall parking lot, Anil sees that vandals have spray painted graffiti on his vehicle. He calls Chad to report the damage and ask what he should do. Chad tells him to report the vandalism to the police, follow their instructions, and then take the vehicle home and wait for a call from a claim representative. Chad then reports the loss to ABC. Melissa is the claim representative assigned Anil's loss. Which one of the following will be the first step Melissa takes? Choose one answer. A. Verify that Anil reported the loss to the police. B. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system. C. Call Anil and take a statement regarding the details of the claim. D. Verify that Anil's automobile policy covers vandalism damage. ID: 5858571

B. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system.

Pravalt Insurance Company, a proprietary insurer is concerned about meeting their insurer goal of earning a profit. CEO Emily has asked for suggestions from her management staff to meet this goal. Which one of the following suggestions from her staff will most effectively achieve this goal? Choose one answer. A. Sales and Marketing Manager, Kaito suggests offering high quality insurance at a price the customer can afford. B. Actuarial Manager, Elin suggests their product be priced competitively in the market and appropriately for their risk. C. Underwriting Manager, Ida suggests they increase all their personal lines writings and write all applicants. D. Sales and Marketing Manager, Kaito suggests writing all auto business in their geographic area. ID: 5897717

B. Actuarial Manager, Elin suggests their product be priced competitively in the market and appropriately for their risk.

Which one of the following statements is correct with respect to establishing actual cash value (ACV) of damaged property? Choose one answer. A. Under the broad evidence rule, some courts have provided a formula for calculating ACV. B. Adjusters often rely on published guides to determine depreciation and individual insurers create such guides based on their experience. C. In some jurisdictions, courts have defined ACV as being equivalent to fair market value less depreciation. D. ACV does not apply to items such as collectibles, antiques, or art that are known to appreciate in value over time. ID: 5844994

B. Adjusters often rely on published guides to determine depreciation and individual insurers create such guides based on their experience.

Which one of the following is an example of the use of access security? Choose one answer. A. Allowing users to maintain passwords B. Allowing only managers to review certain data C. Allowing users to change information D. Allowing only managers to request payments ID: 5867411

B. Allowing only managers to review certain data

Which one of the following is a proprietary insurer? Choose one answer. A. Fraternal organizations B. American Lloyd's C. Mutual insurers D. Captive Insurers ID: 5857324

B. American Lloyd's

Current expensing of losses as a planned retention funding measure would be most appropriate for funding which one of the following? Choose one answer. A. Losses that represent a large proportion of the organization's cash flows B. An auto physical damage deductible C. Litigated liability claims D. Losses with a relatively high expected value ID: 5854566

B. An auto physical damage deductible

Insurer A is a proprietary insurer that acts as an insurance marketplace. Its members underwrite any insurance or reinsurance purchased, and members are primarily partnerships or corporations with limited liability. Insurer A members belong to syndicates and delegate day-to-day operations to the syndicate manager. Insurer A is which one of the following? Choose one answer. A. A cooperative insurer B. An insurance exchange C. An American Lloyds insurer D. A cooperative ID: 5856984

B. An insurance exchange

Which one of the following is the best example of an insurer's risk control activities generating additional revenue for the insurer? Choose one answer. A. A risk control representative works with a policyholder to identify safety improvements. B. An insurer provides industrial hygiene services to a self-insured firm for a fee. C. An insurer helps a policyholder prevent occupational injuries. D. A risk control representative provides an underwriter with an inspection report. ID: 5847679

B. An insurer provides industrial hygiene services to a self-insured firm for a fee.

Which one of the following statements is correct with respect to retrospective rating plans? Choose one answer. A. The loss limit for a retrospective rating plan is the most the insured must pay in any one year for losses. B. An organization must have a substantial insurance premium to benefit from retrospective rating. C. Retrospective rating adjusts premiums for the current policy period based on actual losses from prior policy periods. D. The loss limit for a retrospective rating plan is the most the insurer will pay per occurrence for a loss. ID: 5841793

B. An organization must have a substantial insurance premium to benefit from retrospective rating.

Two steps of the risk management process, when combined, constitute the process of assessing loss exposures. For this reason, they are probably the two most important steps in the process. These two steps are identifying loss exposures and Choose one answer. A. Selecting the appropriate risk management techniques. B. Analyzing loss exposures. C. Examining feasibility of risk management techniques. D. Implementing selected risk management techniques. ID: 5852952

B. Analyzing loss exposures.

The strategy formulation phase of the strategic management process involves Choose one answer. A. Designing an effective organizational structure. B. Analyzing the external and internal environments. C. Implementing management control processes. D. Establishing standards for measuring results. ID: 5848172

B. Analyzing the external and internal environments.

Insurers must typically file statistics with state insurance departments Choose one answer. A. Semi-annually. B. Annually. C. Biannually. D. Every three years. ID: 5857706

B. Annually.

All of the following causes of loss to an individual's property would be considered fortuitous, EXCEPT: Choose one answer. A. Flood B. Arson C. Lightning D. Windstorm ID: 5919951

B. Arson (This is planned, fortuitous loss must be accidental/unexpected)

Which one of the following statements is true? Choose one answer. A. Real property and machinery are examples of liquid assets. B. As an organization's retention level increases, so does the level of liquidity required. C. Liquid assets offer higher returns than other, longer-term investments. D. Liquidity can be increased by using cash flow to fund capital projects. ID: 5841775

B. As an organization's retention level increases, so does the level of liquidity required.

The state of Maryland operates a residual market plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program? Choose one answer. A. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. C. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. D. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. ID: 5847143

B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.

Which one of the following statements is correct regarding personnel loss exposures? Choose one answer. A. Retirement insurance is generally available to compensate organizations for the resulting loss when key employees retire. B. Because retirement is usually planned, most resulting personnel losses can be handled with proper planning. C. Generally a personnel loss resulting from a key employee's retirement is fortuitous from the organization's perspective. D. The personnel loss associated with retirement is the value of any pension or other benefits paid, which is easily measured. ID: 5842797

B. Because retirement is usually planned, most resulting personnel losses can be handled with proper planning.

Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received only two small salary increases and began to embezzle funds from the company since she felt she was not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can be classified as Choose one answer. A. Both a hazard risk and a financial risk. B. Both a hazard risk and an operational risk. C. A financial risk. D. A strategic risk. ID: 5856434

B. Both a hazard risk and an operational risk.

Rating agencies are placing new demands when assessing insurers' financial health. While many other exposures can affect solvency, no single exposure can affect policyholder security more instantaneously than Choose one answer. A. Economic recessions. B. Catastrophes. C. Insurance regulation. D. Rate inadequacy. ID: 5856988

B. Catastrophes.

Soon after a loss has been assigned and initial reserves have been established, a claim representative contacts the insured or the insured's representative. Which one of the following statements is correct with respect to that contact? Choose one answer. A. At the initial contact, claim representatives typically find that insureds fully understand the details of their insurance coverage. B. Claim representatives must be careful not to give the impression that a claim will be paid if potential grounds exist to deny the claim. C. Claim representatives should usually avoid highlighting any possible policy violations, exclusions, or limitations that can affect coverage. D. The initial contact is when claim representatives complete the proof of loss form to document the details and the value of the claim. ID: 5890091

B. Claim representatives must be careful not to give the impression that a claim will be paid if potential grounds exist to deny the claim.

Sofie, a property underwriter for Cintriell Insurance Company is reviewing a new homeowners application. Sofie has changed the protection class to unprotected, as the fire protection class listed by the producer is an eight and is incorrect. Which one of the following line underwriter activities is Sofie performing? Choose one answer. A. Selecting insureds B. Classifying and pricing accounts C. Recommending correct coverage D. Coordinating with producer efforts ID: 5856854

B. Classifying and pricing accounts

A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps? Choose one answer. A. Establish results-based rather than activity-based standards of acceptable performance. B. Compare actual results with the established performance standards. C. Reduce any performance standards that have not been achieved by the actual results. D. Return to the first step in the risk management process to identify new loss exposures. ID: 5840843

B. Compare actual results with the established performance standards.

Which one of the following is determined by a company's underwriting policy? Choose one answer. A. The underwriting authority the insurer grants its producers B. Composition of the insurer's book of business C. The market pursued by the insurer D. The rating organization to which the insurer will belong ID: 5856865

B. Composition of the insurer's book of business

Which one of the following items' property value would be most dramatically and suddenly affected by depreciation? Choose one answer. A. Furniture B. Computer system C. Refrigerator D. Heating system ID: 5850390

B. Computer system

Risk management activities under the enterprise-wide risk management approach occur at the Choose one answer. A. Business unit level. B. Corporate level. C. Departmental level. D. Regional level. ID: 5852965

B. Corporate level.

Which one of the following best describes appropriate data according to Actuarial Standard of Practice (ASOP) No. 23? Choose one answer. A. The concept of appropriate data is an absolute concept applicable in all situtations. B. Data are appropriate if they are suitable for the intended purpose of an analysis and relevant to the system or process being analyzed. C. Appropriate data should be suitable for any type of analysis in an organization. D. Actuaries are the only professionals in an organization who can determine if data are appropriate fo rthe given situation under review. ID: 5857701

B. Data are appropriate if they are suitable for the intended purpose of an analysis and relevant to the system or process being analyzed.

The process in which collected data is compared to the original sources is known as which one of the following? Choose one answer. A. Reasonability testing B. Data auditing C. Ratio analysis D. Data scrubbing ID: 5857463

B. Data auditing

Samuelson Insurance has developed special programs to market personal insurance to members of college alumni and professional associations. This is an example of which one of the following types of market segmentation? Choose one answer. A. Behavioristic B. Demographic C. Geographic D. Psychographic ID: 5857438

B. Demographic

In handling a property claim under Special Form Coverage, a claim representative should gather facts about the cause of loss and then Choose one answer. A. Determine if the cause of loss is a listed covered peril in the Special Form Coverage. B. Determine if the cause of loss is excluded in the Special Form Coverage. C. Determine if the cause of loss is defined in the Definitions Section of the policy. D. Determine if the cause of loss applies to the Declarations Page. ID: 5847491

B. Determine if the cause of loss is excluded in the Special Form Coverage. (Special form coverage is called all risk and covers every cause of direct physical loss that is not excluded. Specified causes of loss coverage is called name perils coverage and covers a loss only if it is a direct result of a listed cause of loss in the policy

Hallbinger Shoe Store closed for two months due to smoke and water damage resulting from a fire in an adjacent structure. All of the following are important issues involved in adjusting Hallbinger's business income claim, EXCEPT: Choose one answer. A. Deciding whether to settle the claim before or after operations have been resumed B. Determining whether the owner of the adjacent structure had property insurance on the structure C. Determining whether Hallbinger used due diligence in completing repairs D. Determining the time period necessary for the store to be restored to use. ID: 5847690

B. Determining whether the owner of the adjacent structure had property insurance on the structure

Insurance Company D (ICD) has traditionally used regional brokers to market and produce its insurance products. The management team at ICD has decided it wants to launch a new specialized product. The marketing plan includes ICD's desire to control the targeted number of monthly applications as well as the methods that will be used to advertise and campaign to achieve the desired results. Which one of the following distribution systems will best allow ICD the desired control? Choose one answer. A. Regional brokerage B. Direct writer C. Exclusive agency D. Independent agency ID: 5859365

B. Direct writer

A data analysis tool called a box and whisker plot is Choose one answer. A. A numeric table of a range of variables using the mean, median, minimum, and maximum. B. Displayed as a 5-point summary of a single variable's distribution. C. A summary of key statistics for the variable(s) using cross-tabulations. D. Designed for tabulating data to identify missing variables where blank values are invalid. ID: 5857737

B. Displayed as a 5-point summary of a single variable's distribution.

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? Choose one answer. A. Inflation, unemployment, and natural disasters, such as hurricanes, are examples of diversifiable risk. B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. C. The distinction between diversifiable and nondiversifiable risks is clear; risks cannot fall under both classifications simultaneously. D. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks. ID: 5840783

B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

Which one of the following is an essential element of a fleet safety program? Choose one answer. A. Proper vehicle classification B. Driver selection C. Driver logs D. Radius of vehicle operation ID: 5844791

B. Driver selection

Which one of the following risk control techniques will reduce loss severity and make losses more predictable, without increasing loss frequency? Choose one answer. A. Diversification B. Duplication C. Loss prevention D. Separation ID: 5853902

B. Duplication

Dave owns a computer store. He stores backup media copies of confidential records off site in case there is a fire at the computer store. The risk control technique Dave is using to protect the confidential records is Choose one answer. A. Diversification. B. Duplication. C. Avoidance. D. Separation. ID: 5852957

B. Duplication.

Which one of the following statements about the underwriting cycle is true? Choose one answer. A. Individual account pricing is not impacted by the underwriting cycle. B. During a soft market, insurance pricing reflects the desire to hold market share. C. When investment returns are not covering underwriting losses, the soft market begins. D. During a hard market, many insurers loosen loss reserves. ID: 5858879

B. During a soft market, insurance pricing reflects the desire to hold market share.

When it comes to providing management with the desired level of assurance, with which of the following does tolerable uncertainty conflict? Choose one answer. A. Legality B. Economy of operations C. Social responsibility D. Survival ID: 5840835

B. Economy of operations

Underwriting guidelines include acceptable approaches to evaluating applicants and the overall desirability of a particular type of risk or class of business. Which one of the following purposes of underwriting guidelines is best served by inclusion of these acceptable approaches? Choose one answer. A. Ensure proper policy issuance B. Ensure uniformity and consistency in risk selection C. Synthesize insights and experience D. Avoid duplication of effort ID: 5856876

B. Ensure uniformity and consistency in risk selection

Julio, a producer for Argot's Insurance Company, submits an application for a 50-year-old residence to Mathilde, the underwriter. Julio wants to know why the homeowners rate is higher for his 50-year-old residence. Mathilde explains that the homeowners rate for the 50-year-old residence is not the same for a five-year-old residence because the exposures are different. Which one of the following underwriting profitability functions of Argot is Mathilde's explanation supporting? Choose one answer. A. Guarding against adverse selection B. Ensuring adequate policyholder's surplus C. Enforcing policy guidelines D. Protecting the homeowner rate ID: 5856825

B. Ensuring adequate policyholder's surplus

Barry, a commercial insured, realizes that due to an error in a past premium audit, he is being over charged for his workers compensation insurance. Which one of the following factors used to calculate Barry's current insurance premium is based on past exposure units and losses? Choose one answer. A. Loss cost rate B. Experience modification factor C. Classification code D. Premium discount factor ID: 5897498

B. Experience modification factor

Joe's Coffee Shop experiences a fire and the resulting damage will take several months to repair. In an effort to retain customers and retain sales, Joe leases a temporary location a few blocks away. The rent for this temporary location is an example of Choose one answer. A. Extended business income expense. B. Extra expense. C. Continuing operating expense. D. Period of restoration expense. ID: 5850396

B. Extra expense.

Which one of the following is a constraint to the development of underwriting policy? Choose one answer. A. Underwriting audits B. Financial capacity C. Market research D. Underwriting guides ID: 5843914

B. Financial capacity

Which one of the following statements is correct regarding finite risk reinsurance? Choose one answer. A. Finite risk reinsurance is designed to cover high frequency and low severity loss exposures. B. Finite risk reinsurance agreements typically have a three to five year term. C. Finite risk reinsurance is less expensive than most traditional types of reinsurance. D. Finite risk reinsurance agreements generally allow the reinsurer to assess additional premium if losses exceed premium. ID: 5920105

B. Finite risk reinsurance agreements typically have a three to five year term.

In the context of the ISO general liability statistical plan, square footage of a retail store is an example of a Choose one answer. A. Variable exposure based rating element. B. Fixed exposure based rating element. C. Subline code based rating element. D. Limit code based rating element. ID: 5857587

B. Fixed exposure based rating element.

Many of Fredine Insurance Company's risk control activities help the insurer reach its profit goals by reducing the frequency and severity of covered losses that would detract from Fredine's profits. Which one of the following activities provides an additional revenue source that contributes directly to Fredine's profit goals? Choose one answer. A. Fredine risk control representatives identify unsafe conditions that policyholders can correct. B. Fredine sells unbundled risk control services to self-insured companies. C. The underwriting information provided by Fredine's risk control representatives leads to better underwriting decisions. D. The quality of Fredine's risk control services helps retain policyholders. ID: 5845368

B. Fredine sells unbundled risk control services to self-insured companies.

Which one of the following correctly describes a reason for government involvement in property-casualty insurance? Choose one answer. A. Selling insurance provides the government with a non-tax source of revenues and profits. B. Government programs can meet legitimate public demands unmet by private insurers. C. Competition from government plans keeps private insurer's premiums competitive. D. Preventing high-risk individuals or activities from being insured is in the public interest. ID: 5842808

B. Government programs can meet legitimate public demands unmet by private insurers.

Which one of the following statements is correct regarding government insurance programs? Choose one answer. A. Government insurers cannot function as primary insurers for duties such as collecting premiums, providing coverage, or paying claims. B. Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention. C. Government partnerships with private insurers usually develop in especially desirable lines of business. D. Government insurance programs cannot operate in direct competition with private insurers. ID: 5842813

B. Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention.

The retention ratio as an underwriting performance measure is the percentage of Choose one answer. A. Policies written to policies quoted. B. Insurance policies renewed. C. Premium held for losses. D. Underwriting expenses to written premiums. ID: 5843937

B. Insurance policies renewed.

Jessica has her car insured for liability, collision, and comprehensive coverage with Greatview Insurance. She has decided to purchase a pickup truck as a second vehicle. As she is leaving the dealership with her new pickup, she accidently collides with another vehicle, causing damage to both. Neither she nor the other driver is injured. Jessica returns home and calls her insurer to advise of her new purchase and to report the claim. Her claim is assigned to Lucas. After identifying the policy and entering initial loss information, which one of the following describes how Lucas would most likely proceed? Choose one answer. A. He would advise Jessica that there is no coverage because the pickup is not listed on the policy. B. He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto." C. He would check whether the dealership has insurance to cover damage to Jessica's new truck. D. He would set a liability reserve for general damages arising from the accident. ID: 5890178

B. He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto

Which one of the following best describes one of the steps in the business continuity process? Choose one answer. A. Identify the organization's important resources B. Identify the risks to the organization's critical functions C. Develop an emergency response plan to deal with life and safety issues D. Arrange appropriate insurance coverage ID: 5841389

B. Identify the risks to the organization's critical functions

Which one of the following statements is correct with respect to the characteristics of the products liability loss exposure? Choose one answer. A. Typically, premiums for products liability insurance are economically feasible, regardless of the product. B. If a product has been widely distributed, a loss could be catastrophic in terms of number of claims. C. Because products liability losses arise out of defective or inherently dangerous products, they are not considered to be fortuitous. D. Products liability losses are typically definite in cause and relatively easy to measure in monetary terms. ID: 5842795

B. If a product has been widely distributed, a loss could be catastrophic in terms of number of claims. (Products liability does not always satisfy definite/measurable, large number of similar exposure units, independent and not catastrophic, economically feasible. Depends on product)

After receiving a claim assignment, a claim representative will identify the policy and assess the coverage available. Which one of the following statements is correct with respect to this activity? Choose one answer. A. Claim representatives generally do not establish claim reserves at this point because the investigation of the loss has not been conducted. B. If it is apparent that coverage may not be available for the loss, the claim representative must notify the insured through a nonwaiver agreement or a reservation of rights letter. C. The claim representative is not typically responsible for verifying whether the insured has followed the policy's terms and conditions before investigating the claim. D. Claim representatives use this initial information to determine the cause of loss, the insured's liability, and the loss amount to be paid. ID: 5890022

B. If it is apparent that coverage may not be available for the loss, the claim representative must notify the insured through a nonwaiver agreement or a reservation of rights letter.

Enterprise-wide risk management (ERM) considers the global array of risks that affect an organization, which can be represented by a three-dimensional depiction of attributes. These attributes are resources, events, and Choose one answer. A. Metrics. B. Impacts. C. Strategies. D. Hazards. ID: 5853311

B. Impacts.

Which one of the following statements is correct regarding the approaches to global expansion? Choose one answer. A. International strategic alliances are typically limited to marketing activities. B. In a joint venture, companies share ownership, responsibilities, and management of a foreign venture. C. Joint ventures with governments or state-owned industries are extremely rare. D. Wholly owned subsidiaries are the least risky method of entering foreign markets because the company retains control of operations. ID: 5897762

B. In a joint venture, companies share ownership, responsibilities, and management of a foreign venture.

The primary role of insurance is to Choose one answer. A. Make a profit for the insurance company's shareholders. B. Indemnify individuals and organizations for covered losses. C. Eliminate risk for insureds and society. D. Meet an insured's risk management requirements. ID: 5855162

B. Indemnify individuals and organizations for covered losses.

For insurers to utilize pooling most effectively, the insured exposure units need to be Choose one answer. A. Correlated. B. Independent. C. Adjacent. D. Different. ID: 5842790

B. Independent.

The cost of residual uncertainty can have a significant effect on an individual or organization. Which one of the following statements is correct with respect to residual uncertainty? Choose one answer. A. For organizations, the cost of residual uncertainty is limited to the effect that uncertainty has on the organization itself. B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy. C. The cost of residual uncertainty includes the cost of any insurance policies purchased to cover losses not treated by other risk management techniques. D. The cost of residual uncertainty can be calculated by subtracting the expected cost of losses or gains from an organization's cost of risk. ID: 5840794

B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy.

Business continuity management was initially developed with a focus on Choose one answer. A. Ethical concerns. B. Information technology concerns. C. Terrorism concerns. D. Life safety concerns. ID: 5853900

B. Information technology concerns.

Which one of the following statements is correct regarding the benefits provided by insurance? Choose one answer. A. The reduction in losses paid by insurers due to risk control measures benefits individual insureds but not society as a whole. B. Insurance helps reduce the financial burden to society by compensating accident victims. C. The primary role of insurance is to meet mandatory insurance requirements. D. Insurance reduces the financial consequences of loss exposures but not the related uncertainty. ID: 5847930

B. Insurance helps reduce the financial burden to society by compensating accident victims.

To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability? Choose one answer. A. It is typically expressed verbally rather than numerically. B. It can be used to decide which activities to undertake. C. It verifies that risk is present, but does not quantify it. D. It identifies what can be lost when a negative outcome occurs ID: 5840771

B. It can be used to decide which activities to undertake.

Which one of the following statements is correct with respect to self-insurance? Choose one answer. A. It is an informal retention plan in which an organization pays losses using cash flows or current liquid assets with no method of recording losses. B. It is often used to cover workers' compensation and other loss exposures that have claim payments that extend over time. C. Cost of risk with self-insurance is typically higher than with other risk financing measures. D. It is usually used for low-frequency loss exposures. ID: 5841790

B. It is often used to cover workers' compensation and other loss exposures that have claim payments that extend over time

Which one of the following statements is correct with respect to the fire cause of loss in commercial property insurance? Choose one answer. A. Pinpointing the time at which a fire began is usually difficult and loss timing is critical. B. Knowing the value of a building or its contents is critical in measuring the amount of a fire loss. C. An insurer can do little to ensure that fire loss exposures are independent and not catastrophic. D. Because fires are high-severity events, this cause of loss is generally expensive to insure. ID: 5842793

B. Knowing the value of a building or its contents is critical in measuring the amount of a fire loss.

The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposures is called a Choose one answer. A. Loss limit. B. Line. C. Retrocession. D. Novation. ID: 5824656

B. Line.

Incurred losses (including loss adjustment expenses) divided by earned premium is the formula for Choose one answer. A. Combined ratio. B. Loss ratio. C. Expense ratio. D. Underwriting profit ratio. ID: 5857861

B. Loss ratio.

Automatic sprinklers are a classic example of which one of the following risk control techniques? Choose one answer. A. Avoidance B. Loss reduction C. Disaster planning D. Separation ID: 5841365

B. Loss reduction

Three risk control techniques can be used effectively to control liability losses. Which one of the following is included among those three techniques? Choose one answer. A. Separation B. Loss reduction C. Duplication D. Diversification ID: 5841384

B. Loss reduction

One of the biggest problems in measuring insurer profitability arises from errors in estimating Choose one answer. A. Unearned premiums. B. Loss reserves. C. Underwriting expenses. D. Investment income. ID: 5897460

B. Loss reserves.

Risk transfer measures are most appropriate for losses that exhibit which one of the following patterns? Choose one answer. A. Low-frequency, low-severity B. Low-frequency, high-severity C. High-frequency, low-severity D. High-frequency, high-severity ID: 5841787

B. Low-frequency, high-severity

Which one of the following cases illustrates an external constraint for meeting insurer goals? Choose one answer. A. Delmond Insurance Company's claims systems is antiquated and does not process payments within a day of submission like their competition. B. Mellfor Insurance Company has lost income from a recent increase in workers compensation losses caused by fraud. C. Jancy Insurance Company's CEO, Antonia was arrested for embezzling company funds. D. Haltbinger Insurance Company receives a national award for quality customer service. ID: 5897601

B. Mellfor Insurance Company has lost income from a recent increase in workers compensation losses caused by fraud.

Which one of these data quality problems impairs or prevents an analyst's ability to use the affected variables for analysis? Choose one answer. A. Default values B. Missing data C. Duplicate transactions D. Data errors ID: 5857743

B. Missing data

Which one of the following has load-bearing walls and columns of masonry or reinforced concrete construction and has a fire-resistance rating of one to two hours? Choose one answer. A. Fire-resistive construction B. Modified fire-resistive construction C. Masonry noncombustible construction D. Joisted masonry construction ID: 5847037

B. Modified fire-resistive construction

Tania has been unemployed for six months, and her unpaid bills are mounting. She recently damaged the front fender of her vehicle after running off the road. When seeking repairs to the vehicle, she convinced the auto body shop to include damages from previous incidents in the estimate. This would allow her to collect extra money from her insurer. From an insurance and risk management perspective, Tania's behavior is indicative of a Choose one answer. A. Legal hazard. B. Moral hazard. C. Morale hazard. D. Physical hazard. ID: 5853193

B. Moral hazard.

Despite being frequently reminded otherwise, Laura was in the habit of leaving her car door unlocked, often with her purse inside. As a result, Laura's car was stolen, along with her purse. Laura's behavior is an example of a Choose one answer. A. Moral hazard. B. Morale hazard. C. Physical hazard. D. Legal hazard. ID: 5852885

B. Morale hazard.

Which one of the following is an organizational structure in which groups are organized into separate profit centers? Choose one answer. A. Functional structure B. Multidivisional structure C. Diversified structure D. Conglomerate structure ID: 5846295

B. Multidivisional structure

Which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pays the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income? Choose one answer. A. Beach and Windstorm Plan B. National Flood Insurance Program (NFIP) C. Terrorism Risk Insurance Program (TRIP) D. Residual Auto Plan ID: 5842815

B. National Flood Insurance Program (NFIP)

Which one of the following insurance consumer groups would have the most risk financing alternatives available to them? Choose one answer. A. Individuals B. National accounts C. Small business D. Middle markets ID: 5857413

B. National accounts

Which one of the following statements is correct with respect to the premium auditing process? Choose one answer. A. Premium auditors use rules, rather than judgment, when analyzing and verifying premium data to ensure audit validity. B. Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable. C. Advisory organizations specify the amount of evidence required to ascertain loss exposures and classifications with reasonable certainty. D. The written audit report summarizes the results of the audit, but does not document the process or the sources of the data used. ID: 5847226

B. Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable.

Vanessa, an underwriter, is evaluating a CGL application for Taunton Publishing. Taunton publishes a weekly tabloid newspaper with articles about popular entertainment and political figures. It has a large readership. The newspaper owns and operates out of a new, single-story building in a complex of commercial buildings. The publishing equipment is computerized, state-of-the-art. The publisher sells through variety stores, grocery stores, and newsstands and it has no on-premises retail operation. Taunton does have outside sales staff that promote the publisher's newspaper among potential sales outlets and that solicit advertising. Which one of the following liability loss exposures would Vanessa probably consider to be Taunton's greatest? Choose one answer. A. Premises liability for the publishing facility B. Operations liability for sales staff activities at vendors and advertisers C. Products liability for the newspapers that the organization sells D. Personal and advertising injury for potential libel, slander, or copyright infringement ID: 5847183

B. Operations liability for sales staff activities at vendors and advertisers

A pedestrian is injured as a result of tripping over a bag of cement being used by a contractor to repair a sidewalk. The commercial general liability loss exposure for the contractor in this example is known as Choose one answer. A. Personal and advertising liability. B. Operations liability. C. Products liability. D. Contractual liability. ID: 5844426

B. Operations liability.

Which one of the following is a source of capital for cooperative insurers? Choose one answer. A. Investors B. Policyholder premium C. Common stock D. Policyholder dividends ID: 5897596

B. Policyholder premium

An office building houses a small tax accounting firm with 10 employees. Most clients visit the office in person, and very little travel is required by the accountants. When underwriting commercial general liability coverage for this risk, the primary concern would be Choose one answer. A. Operations loss exposures. B. Premises loss exposures. C. Products loss exposures. D. Completed operations loss exposures. ID: 5848058

B. Premises loss exposures.

Which one of the following statements about premium auditing is true? Choose one answer. A. Premium auditors exclude from the audit report any payroll that has been improperly classified. B. Premium auditors determine whether a given policy uses the correct rating classification(s). C. Premium audits are conducted at the beginning of each policy period. D. Premium audits determine the estimated premium an insured must pay. ID: 5845376

B. Premium auditors determine whether a given policy uses the correct rating classification(s).

Which one of the following statements is true concerning adjustment of property claims? Choose one answer. A. Claims for extra expense are settled only prospectively. B. Proper settlement of business income claims requires detailed analysis of financial records. C. Most claim representatives with experience in residential losses can estimate commercial losses. D. Residential personal property is the only significant source of salvage for the insurance industry. ID: 5845436

B. Proper settlement of business income claims requires detailed analysis of financial records.

The accounting date in an Insurance Services Office (ISO) statistical plan Choose one answer. A. Indicates which set of statistical plan codes were valid at the inception of the coverage. B. Provides assurance that the intended premium and loss data were reported, and reported once only. C. Is used to assign premium and loss records to the proper policy year. D. Reflects the period of time for which coverage is provided. ID: 5857802

B. Provides assurance that the intended premium and loss data were reported, and reported once only.

Which one of the following statements is correct regarding property insurance provisions? Choose one answer. A. Policy provisions about what property is covered, where it is covered, and when it is covered, are a common area of disagreement between insurers and insureds. B. Real and personal property might be valued differently, have different limits of insurance, and different coinsurance requirements under the same policy. C. Most property policies automatically extend coverage to losses occurring within 60 days following policy expiration. D. The failure of electrical components of a refrigerator caused by a lightning strike is an example of indirect loss. ID: 5844980

B. Real and personal property might be valued differently, have different limits of insurance, and different coinsurance requirements under the same policy.

A primary insurer is able to obtain surplus relief through reinsurance by Choose one answer. A. Obtaining underwriting advice from a reinsurer to increase underwriting profit. B. Receiving ceding commissions to offset policy acquisition expenses. C. Minimizing fluctuations in retained losses from year to year. D. Reducing large line capacity to minimize the ratio of net written premium to policyholders' surplus. ID: 5819163

B. Receiving ceding commissions to offset policy acquisition expenses.

Which one of the following statements is correct regarding sources of reinsurers? Choose one answer. A. Primary insurers dealing with direct writing reinsurers generally use a single reinsurer for all of their needs. B. Reinsurance intermediaries can often help secure high coverage limits and catastrophe coverage. C. Reinsurance intermediaries generally have access only to the domestic reinsurance market. D. Reinsurance intermediaries generally represent professional reinsurers and receive a brokerage commission from the primary insurers. ID: 5857805

B. Reinsurance intermediaries can often help secure high coverage limits and catastrophe coverage.

Which one of the following statements is correct with respect to retention's ability to meet risk financing goals? Choose one answer. A. Retention exposes an organization to less variability in cash flows than transfer. B. Retention enables an organization to manage its cost of risk. C. Retention is the most effective way to meet the risk financing goal of paying losses. D. Retention generally reduces the level of liquidity needed. ID: 5841784

B. Retention enables an organization to manage its cost of risk.

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions? Choose one answer. A. Risk control representatives are responsible for compiling all the information required for a premium audit. B. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements. C. Risk control representatives compile detailed data for the actuarial department to use in establishing rates. D. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits. ID: 5859396

B. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements.

Bodily injury liability damages can be classified as either Choose one answer. A. Comparative or contributory. B. Special or general. C. Contractual or statutory. D. Vicarious or strict. ID: 5845610

B. Special or general.

Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a Choose one answer. A. Speculative risk. B. Subjective risk. C. Market risk. D. Strategic risk. ID: 5856404

B. Subjective risk.

Jane always drives to visit her children who live one thousand miles away. She enjoys driving and feels safer in a vehicle than on an airplane because she feels she has more control of her fate. This driving versus flying decision is an example of Choose one answer. A. Nondiversifiable risk. B. Subjective risk. C. Objective risk. D. Speculative risk. ID: 5856425

B. Subjective risk.

Under ISO's personal automobile statistical plan, the coverage being reported is recorded in which one of the following data elements? Choose one answer. A. Symbol code. B. Subline code. C. Type of policy. D. Type of business. ID: 5857586

B. Subline code.

JSP Insurance Agency (JSP) is an exclusive agency for a large writer of personal insurance products. JSP occupies the end unit of a strip shopping center, and a restaurant occupies the adjoining unit. JSP's office is separated by adequate clear space from an adjacent strip of stores. The strip mall is classified as ISO construction class 3 and is made of noncombustible materials. JSP's office is separated from the restaurant by a movable wall to allow the units to be easily resized to meet occupants' needs. The ISO public protection classification (PPC) for the strip mall is 2. Given this information, which one of the following statements is true regarding the physical hazards presented by JSP from a fire underwriting standpoint? Choose one answer. A. The noncombustible construction of this property means that this building is fire resistive and much safer than joisted masonry or frame construction. B. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss. C. The nature of JSP's business makes this a relatively high-hazard risk from an occupancy standpoint. D. The external loss exposures presented to JSP require no special consideration due to the construction type and the end unit location within the mall. ID: 5844933

B. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss.

Which one of the following statements is correct with respect to an organization's risk financing goals? Choose one answer. A. To be effective as part of a risk management program, the cost of risk must be managed to minimize administrative, risk control, and risk financing expenses. B. The acceptable cash flow variability level for an organization depends on factors such as its size and financial strength. C. For most organizations, borrowing is the only available method of increasing liquidity to pay for retained losses. D. The level of cash flow variability that an organization is willing to accept is highest for organizations that prefer to avoid risk. ID: 5841777

B. The acceptable cash flow variability level for an organization depends on factors such as its size and financial strength.

After investing significant resources to develop a Web-based system, a personal lines insurer has decided to expand its territory by assuming the role of a direct writer and using the Internet as a distribution channel. What is the insurer's greatest concern with the existing book which used independent agents as the distribution system? Choose one answer. A. The quality of the existing book compared to the new book B. The agents own the expirations for the existing book C. Clear communication with existing customers D. The service needs of the existing book ID: 5857428

B. The agents own the expirations for the existing book

A claim adjuster is handling a claim for a commercial manufacturing plant that was completely destroyed by fire. The building is insured for $2,500,000 on an actual cash value (ACV) basis. Which one of the following statements is true regarding the claim adjustment process for this claim? Choose one answer. A. In addition to working with an architect to develop building specifications, the claim adjuster will need to engage a contractor to perform the reconstruction on the plant. B. The claim adjuster should have a solid accounting report that establishes motive before considering asserting an arson defense. C. If there is a mortgagee involved, the claim adjuster must be sure to make the claim settlement check payable only to the mortgagee. D. To determine ACV, the claim adjuster should use the amount shown for depreciation in the owner's financial records. ID: 5848681

B. The claim adjuster should have a solid accounting report that establishes motive before considering asserting an arson defense.

Many laws and regulations require organizations to implement specific risk control measures. Which one of the following statements is true in this regard? Choose one answer. A. These measures are a means of implementing the risk control techniques of separation, duplication, and diversification. B. The cost of adhering to these legal requirements becomes part of the cost of risk. C. These laws and regulations are amended infrequently and do not require ongoing monitoring. D. Failure to comply with legal requirements can expose an organization to sanction, but not to liability. ID: 5841371

B. The cost of adhering to these legal requirements becomes part of the cost of risk.

Which one of the following best explains a constructive total loss in auto property damage claims? Choose one answer. A. The cost to repair or replace the damaged auto is equal to the policy's coverage limit applicable to that auto. B. The cost to repair the damaged auto plus its salvage value equals or exceeds the auto's pre-loss value. C. The cost to repair the damaged auto is equal to or greater than 50 percent of the auto's value before the loss. D. The cost to repair or replace the damaged auto is more than the salvage value of the auto. ID: 5845291

B. The cost to repair the damaged auto plus its salvage value equals or exceeds the auto's pre-loss value.

Which one of the following statements is true regarding risk management program goals? Choose one answer. A. The goal of economy of operations is that the organization should incur only moderate costs in exchange for significant benefits. B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty. C. The goal of earnings stability is that the organization should strive for the highest possible level of profit in the post-loss period. D. An organization with a post-loss goal requiring a minimum level of profit tends to spend less on risk financing than an organization that does not require minimum profit. ID: 5840837

B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty.

What is the primary source regulators use to collect data to determine the financial solvency of an insurer? Choose one answer. A. A Statistical Plan B. The insurer's Annual Statement C. The Insurance Services Office, Inc. (ISO) D. A statistical agent ID: 5857698

B. The insurer's Annual Statement

Which one of the following is true about insurable interest in property insurance? Choose one answer. A. An insured's recovery is limited to the amount of its insurable interest at the time the insurance is purchased. B. The most common interest in property comes from outright ownership. C. No more than one entity may have an insurable interest in a given property at a given point in time. D. Insurable interest is the primary policy provision that determines the amount paid. ID: 5857759

B. The most common interest in property comes from outright ownership.

Why do many professional malpractice insurance policies require the policyholder's consent to settlement? Choose one answer. A. Many malpractice policies have a high deductible that is the responsibility of the policyholder. B. The outcome of malpractice claims affects the policyholder's professional reputation. C. Many malpractice policies require the policyholder who rejects a proposed settlement to be responsible for any verdict in excess of the proposed settlement. D. Malpractice claims are litigated by the most sophisticated plaintiff and defense attorneys. ID: 5849520

B. The outcome of malpractice claims affects the policyholder's professional reputation.

Which one of the following statements is correct with respect to finite risk insurance plans? Choose one answer. A. A finite risk insurance plan is typically used for high-frequency, low severity loss exposures. B. The premium in a finite risk insurance plan is a very high percentage of the policy limits. C. A finite risk insurance plan typically provides lower limits than guaranteed cost insurance. D. A disadvantage is that a finite risk plan does not address the goal of complying with legal requirements. ID: 5841792

B. The premium in a finite risk insurance plan is a very high percentage of the policy limits

Which one of the following statements is true regarding risk management techniques? Choose one answer. A. Data based on objective risk factors are usually the only criteria considered in determining appropriate risk management techniques. B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical. C. In support of the goal of economy of operations, the risk management techniques selected by most for-profit organizations should be the least expensive ones. D. Nonfinancial considerations are usually disregarded in selecting risk management techniques because they cannot be factored into a cost/benefit analysis. ID: 5840841

B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical.

Which one of the following controls the coverage provided by a workers compensation policy? Choose one answer. A. The policy provisions B. The state compensation laws C. The Occupational Safety and Health Administration (OSHA) D. Professional employer organizations (PEOs) ID: 5844883

B. The state compensation laws

Which one of the following statements is correct with regard to the use of facultative reinsurance? Choose one answer. A. Facultative reinsurance is generally not an option for insuring loss exposures that are inconsistent with the primary insurer's typical portfolio. B. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance. C. The administrative costs associated with placing facultative reinsurance are relatively low. D. Facultative reinsurance is generally not an option for insuring classes of loss exposures that are excluded under treaty reinsurance. ID: 5857819

B. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance.

Which one of the following statements is correct with respect to selecting a distribution channel? Choose one answer. A. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected. C. The majority of customers prefer to speak with a producer or service representative rather than access their account information online. D. The primary consideration is what approach will allow the insurer to operate efficiently. ID: 5846683

B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.

The final, and ongoing, step in the underwriting process is monitoring underwriting decisions. Which one of the following statements is correct with respect to this process? Choose one answer. A. Because underwriters do not have the resources necessary for constant monitoring of all individual policies, existing policies are reviewed only upon renewal. B. The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved. C. Renewal underwriting is typically more time-consuming than new business underwriting as claim reports and risk control reports must be reviewed. D. Underwriters will generally not concern themselves with changes in the nature of the insured's business when monitoring the insured's policy. ID: 5889998

B. The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved.

Which one of the following financial consequences of loss can be established with a high degree of certainty fairly soon after the loss occurs? Choose one answer. A. The value of a pollution loss B. The value of a building that has been damaged by fire C. The value of business lost while the building damaged by fire is being restored D. The value of liability claims related to a defective product ID: 5852887

B. The value of a building that has been damaged by fire

Which one of the following is considered an advantage of the use of retention as a risk financing technique? Choose one answer. A. Less cash flow variability B. Timing of cash flows C. Less exposure to large loss D. Avoiding adverse public relations ID: 5853215

B. Timing of cash flows

From an actuarial standpoint, which one of the following statements best describes the purpose of metadata? Choose one answer. A. To make information as accessible as possible B. To make information as transparent as possible C. To make information as accurate as possible D. To make information as complex as possible ID: 5857621

B. To make information as transparent as possible

Which one of the following best describes the purpose of a safety program developed by an insurer's risk control representative? Choose one answer. A. To provide complete evaluation of the policyholder's operations B. To raise workers' awareness of loss exposures and appropriate safety behaviors C. To provide written analysis of the policyholder's loss history D. To raise policyholders' awareness of discounts available for following safety programs ID: 5847687

B. To raise workers' awareness of loss exposures and appropriate safety behaviors

Because underwriting guidelines usually specify the attributes of accounts that insurers are willing to insure, insurers consider them Choose one answer. A. The tool for training underwriters. B. Trade secrets. C. The key to profitability. D. The level of authority. ID: 5856875

B. Trade secrets.

Which one of the following often leads to insurer insolvency, withdrawal from certain geographic markets, and reinsurance shortages? Choose one answer. A. Regulatory controls B. Unanticipated catastrophic losses C. Economic inflation D. Underwriting cycle shifts ID: 5857435

B. Unanticipated catastrophic losses

State insurance regulators conduct claim audits to ensure Choose one answer. A. Compliance with reinsurance treaties. B. Understanding of reserving practices. C. Fair and appropriate pricing. D. Equal workloads of claim representatives. ID: 5867432

B. Understanding of reserving practices.

Which one of the following statements is correct with respect to personal automobile insurance? Choose one answer. A. Drivers are more likely to be involved in fatal auto accidents in urban areas. B. Underwriters evaluate a driver's prior accidents and prior moving violations. C. Auto theft and vandalism occur more frequently in remote areas with fewer witnesses. D. All states prohibit the use of gender or marital status as underwriting or rating factors. ID: 5847201

B. Underwriters evaluate a driver's prior accidents and prior moving violations.

Underwriting guidelines reflect the levels of Choose one answer. A. Written premium by type of insurance. B. Underwriting authority. C. Rate modification. D. Responsibility by job title. ID: 5897626

B. Underwriting authority.

ERM optimizes risk taking in relation to strategic goals. ERM also considers the risk that the organization will outperform its strategic goals, which is referred to as Choose one answer. A. Pure risk. B. Upside risk. C. Situational risk. D. Resultant risk. ID: 5853268

B. Upside risk.

Which one of the following types of reinsurance treaties has the advantage of enabling a primary insurer to retain a larger proportion of the small loss exposures that are within its financial capability to absorb, while maintaining a safer and smaller retention on larger loss exposures? Choose one answer. A. Pro rata reinsurance B. Variable quota share C. Surplus share D. Excess of loss ID: 5890138

B. Variable quota share

Delmond Insurance Company's executive staff has identified problems stemming from some of the company's key divisions such as human resources and administration. A SWOT (strengths, weaknesses, opportunities, and threats) analysis reveals that the situation is a result of lack of managerial depth and talent. Under which one of the following parts of the SWOT analysis would this situation be identified? Choose one answer. A. Strengths B. Weaknesses C. Opportunities D. Threats ID: 5900687

B. Weaknesses (Remember Strengths/weaknesses are internal assessment while opportunities/threats are external assessment)

Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility? New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million Choose one answer. A. $7.0 million B. $10.0 million C. $11.5 million D. $71.5 million ID: 5852968

C. $11.5 million (safety system upgrades, insurance premiums, retained losses, risk management department budget)

According to industry estimates, fraud accounts for which one of the following percentages of property-casualty losses? Choose one answer. A. 5% B. 7% C. 10% D. 15% ID: 5857360

C. 10%

Insurer C (IC) has the following year-end results: Written premiums $30,000,000 Earned premiums $25,000,000 Incurred underwriting expenses $12,000,000 Incurred losses (including LAE) $20,000,000 Which one of the following is IC's combined ratio (trade basis)? Choose one answer. A. 48 percent B. 80 percent C. 120 percent D. 128 percent ID: 5843365

C. 120 percent The combined ratio is calculated by adding the loss ratio (incurred losses including LAE divided by earned premiums) to the expense ratio (incurred underwriting expenses divided by written premiums), which is 120 percent.

Insurer A writes standard personal lines insurance products. The insurer is adopting a new strategy for distributing products that emphasizes direct and Internet sales over the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are expected to be more efficient as a result. Which one of the following strategies is Insurer A most likely pursuing? Choose one answer. A. A harvest strategy B. A differentiation strategy C. A cost leadership strategy D. A divestiture strategy ID: 5846292

C. A cost leadership strategy

Which one of the following statements is correct regarding treaty reinsurance? Choose one answer. A. The relationship between a primary insurer and its treaty reinsurer is typically limited to the one-year term of the reinsurance agreement. B. The price and terms of reinsurance treaties are standard with little negotiation between the parties. C. A long-term relationship with a reinsurer enables a primary insurer to consistently fulfill producers' requests for insurance. D. Treaty reinsurance agreements are usually designed to address a primary insurer's need to insure atypical risks. ID: 5857823

C. A long-term relationship with a reinsurer enables a primary insurer to consistently fulfill producers' requests for insurance

Premium auditor Dennis was inspecting an insured's work site which appeared to run smoothly. However in questioning the employees, Dennis learned that they were apathetic toward equipment maintenance. They entered false information into the maintenance logs and skipped scheduled facility cleaning sessions. This type of situation uncovered by Dennis is indicative of Choose one answer. A. Fraud. B. A moral hazard. C. A morale hazard. D. A physical hazard. ID: 5856771

C. A morale hazard

Which one of the following statements is correct with respect to business income coverage? Choose one answer. A. A covered loss can occur even without direct damage to property at the insured premises. B. PML is based on projected earnings and estimated rebuilding costs. C. A seasonal business could suffer a severe loss from a relatively short shutdown. D. The BOP provides business income coverage subject to a relatively high dollar limit. ID: 5847060

C. A seasonal business could suffer a severe loss from a relatively short shutdown.

The control of a computer user's ability to review, enter, and change information in a claim information system is an example of which one of the following types of claim department control? Choose one answer. A. Authority level B. Tracking system C. Access security D. Manager review ID: 5867408

C. Access security

Which one of the following statements regarding monitoring the results of a risk management program is true? Choose one answer. A. A results standard focuses on the quality and quantity of the risk management activities undertaken by the organization. B. Risk management professionals generally prefer performance standards that are solely dependent on the organization's loss record. C. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program. D. When performance substantially exceeds the standard, the risk management professional knows that the standard has been appropriately set. ID: 5852961

C. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program.

Which one of the following insurer functions includes calculating insurance rates, developing rating plans, estimating loss reserves, and providing predictive modeling services? Choose one answer. A. Accounting and finance B. Premium auditing C. Actuarial D. Underwriting ID: 5856982

C. Actuarial

Defining accuracy ratios Choose one answer. A. Sets the frequency of correct values for a data element. B. Allow comparison of record counts and dollar counts. C. Allows comparison of one audit period to the next. D. Adds rigor to the statistical analysis. ID: 5857464

C. Allows comparison of one audit period to the next.

Which one of the following statements is accurate regarding pure and speculative risks? Choose one answer. A. A pure risk is a chance of loss or no loss, or a chance of gain. B. Pure risks may sometimes be desirable. C. Every business venture involves speculative risks. D. Financial investments typically involve pure risk. ID: 5856423

C. Every business venture involves speculative risks.

Sarah is a risk professional involved in her organization's enterprise-wide risk management (ERM) program. She is currently involved in a study to determine the impact on consumer demand resulting from the organization's effect on the environment. Sarah is involved in which one of the following steps of the ERM process? Choose one answer. A. Develop ERM goals B. Determine whether it is necessary to communicate with external stakeholders C. Analyze, evaluate, and prioritize critical risks D. Treat critical risks, considering priority ID: 5853301

C. Analyze, evaluate, and prioritize critical risks

When selecting appropriate data for ratemaking analysis, actuaries should select loss and exposure data that are reasonably current and that Choose one answer. A. Are drawn from exposures that depict the insurers' past experience. B. Depict the greatest loss payments. C. Are drawn from exposures similar to those expected in the future. D. Depict the lowest loss payments. ID: 5857740

C. Are drawn from exposures similar to those expected in the future.

Buildings, investments, patents, and human resources are all examples of Choose one answer. A. Causes of loss or perils. B. Financial consequences of loss. C. Assets exposed to loss. D. Tangible and intangible hazards. ID: 5840773

C. Assets exposed to loss.

Insurers can use different methods of setting claim reserves. Which one of the following methods establishes a predetermined dollar amount of reserve for each claim as it is reported? Choose one answer. A. Roundtable B. Individual case C. Average value D. Expert system ID: 5890088

C. Average value

Underwriting guidelines serve which one of the following purposes? Choose one answer. A. Provide for flexible and unstructured decisions B. Allow for the development of insights and experience C. Avoid duplication of effort D. Provide rates for individual risks ID: 5856873

C. Avoid duplication of effort

An insurer that targets large middle-market and national accounts would most likely use which one of the following distribution systems? Choose one answer. A. Exclusive agent B. Internet C. Broker D. Direct ID: 5857412

C. Broker

The enterprise risk manager, who is often called a chief risk officer, typically reports to the organization's Choose one answer. A. Legal department. B. Finance department. C. Chief executive officer (CEO). D. Safety manager. ID: 5853317

C. Chief executive officer (CEO).

Which one of the following statements is correct with respect to liability insurance policies? Choose one answer. A. In liability insurance policies, the terms "bodily injury" and "personal injury" hold the same meaning. B. Lawsuits alleging financial harm due to breach of contract are clearly covered under liability insurance policies. C. Claims for interference with use of property seeking only injunctive relief may be covered under liability insurance policies because loss of use is considered to be "property damage." D. In jurisdictions that allow tort claims based on emotional injury only, the emotional injury generally does not constitute bodily injury for coverage purposes under liability insurance policies. ID: 5845263

C. Claims for interference with use of property seeking only injunctive relief may be covered under liability insurance policies because loss of use is considered to be "property damage."

Claims information can be valuable to premium auditing in the verification of employment classifications. However, premium auditing provides an even more valuable contribution to the claims function by verifying or correcting the Choose one answer. A. Amount of claim reserves. B. Territorial rating factors. C. Classification codes assigned to an insured's claims. D. Credibility factors used in rate calculations. ID: 5856773

C. Classification codes assigned to an insured's claims.

Classifying the various types of risk can help in assessing, controlling, and financing risk as part of the risk management process. Which one of the following statements is true regarding the typical classifications of risk? Choose one answer. A. Classifications of risk are mutually exclusive. B. All classification pairs can not be applied to any given risk. C. Classifications of risk can help with controlling and financing risk. D. Classifications of risk is not helpful with assessing risk but can assist with the administrative function of risk management. ID: 5856461

C. Classifications of risk can help with controlling and financing risk.

One step in the liability claims adjusting process is determining legal liability. As they investigate liability, claim representatives must also investigate possible defenses. Which one of the following defenses allows the claimant's recovery to be reduced in proportion to the claimant's share of fault? Choose one answer. A. Contributory negligence B. Assumption of risk C. Comparative negligence D. Absence of sole negligence ID: 5849508

C. Comparative negligence

Developing a safety management program begins with a Choose one answer. A. Series of safety-related subjects. B. Service contract to provide periodic testing and maintenance of all fire protection systems. C. Complete evaluation of the policyholder's operations. D. Positive safety attitude among all workers. ID: 5844216

C. Complete evaluation of the policyholder's operations.

The principal method of determining a prospect's insurance needs is through Choose one answer. A. Reviewing the prospect's current insurance policies. B. Determining how much the prospect is willing to pay for insurance coverage. C. Completing a risk management review for the prospect. D. Asking the prospect what coverage they would like to purchase. ID: 5846661

C. Completing a risk management review for the prospect.

When applicable law conflicts with the Actuarial Standard of Practice No. 23 (ASOP 23) which one of the following is true? Choose one answer. A. Compliance with such applicable law shall be deemed a deviation from this standard. B. Compliance with such applicable law shall not be deemed a deviation from this standard. C. Compliance with such applicable law shall not be deemed a deviation from this standard, provided the actuary discloses that the actuarial assignment was performed in accordance with the requirements of such applicable law. D. Compliance with such applicable law shall be deemed a permissible deviation from this standard, provided the actuary discloses that the actuarial assignment had to be performed in accordance with such applicable law that was in conflict with ASOP 23. ID: 5857751

C. Compliance with such applicable law shall not be deemed a deviation from this standard, provided the actuary discloses that the actuarial assignment was performed in accordance with the requirements of such applicable law.

Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the Choose one answer. A. Cost of implementing and administering risk management. B. Cost of losses not reimbursed by insurance. C. Cost of residual uncertainty. D. Cost of measures to prevent or reduce the size of potential losses. ID: 5852970

C. Cost of residual uncertainty.

Which one of the following cases illustrates how underwriting guidelines ensure that selection decisions provide uniformity and consistency by all the insurer's underwriters? Choose one answer. A. Ella, an experienced staff underwriter provides insight for Cromley's Insurance on amusement parks by authoring a section on amusement parks in the underwriting guidelines. B. Cromley's underwriting guidelines provide a section on insuring swimming pools, illustrating the principal considerations for such risks. New underwriter Pedro refers to this section of the quidelines. C. Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk. D. Cromley's underwriter, Ciara uses predictive modeling to analyze her risks. She is underwriting Chloe's homeowner application and it falls within the acceptable scores the company has created. ID: 5897674

C. Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk.

For which one of the reasons below do actuaries review claim files? Choose one answer. A. Compliance with claim policy and procedures B. Preparation for performance reviews C. Determination of how reserves were established D. Adherence to reinsurance requirements ID: 5867425

C. Determination of how reserves were established

Antonia and Philip have their house insured with Durham Insurance under an HO-3 homeowner's policy. Philip is the named insured and there is no mortgagee shown on the policy. During a storm, a lightning strike results in a kitchen fire and high winds causes a tree to fall on the roof, leaving a large hole. The homeowners make emergency repairs to protect against further damage and report the loss to the insurer. The claim is assigned to Miguel who identifies the policy and performs an initial review. After discussing the loss with Antonia and Philip, which one of the following will Miguel most likely do? Choose one answer. A. Take detailed statements from firefighters and neighbors to establish what the actual cause of loss was B. Verify whether there is a mortgagee on the property that may need to be included in the loss settlement C. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply D. Verify that Antonia meets the policy definition of "insured" and is entitled to receive payment for her portion of the loss ID: 5890176

C. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

Which one of the following statements is true concerning products liability claims? Choose one answer. A. Retailers are not responsible to the claimant if the manufacturer cannot be identified. B. Defending products liability claims is similar for manufacturers than wholesalers and retailers. C. Determining liability in products claims often involves redesigning the product after an accident often involving expert opinion. D. Warnings that accompany the product, if not read or remembered by the claimant, can still be alleged as the cause of the claimant's accident. ID: 5845708

C. Determining liability in products claims often involves redesigning the product after an accident often involving expert opinion.

Which one of the following risk control techniques is more commonly applied to managing business risk rather than hazard risk? Choose one answer. A. Avoidance B. Separation C. Diversification D. Duplication ID: 5841368

C. Diversification

The risk control technique that spreads loss exposures over numerous projects, products, regions, or markets is Choose one answer. A. Separation. B. Duplication. C. Diversification. D. Loss prevention. ID: 5853086

C. Diversification.

Which one of the following is a procedure that claim representatives must follow to settle a claim? Choose one answer. A. Avoiding waiver and estoppel B. Conduct an examination of the insured under oath. C. Documenting the cause and amount of the loss D. Engaging a public adjuster ID: 5845416

C. Documenting the cause and amount of the loss

Which one of the following is most likely to conflict with the post-loss goal of continuity of operations? Choose one answer. A. Social responsibility B. Tolerable uncertainty C. Economy of operations D. Survival ID: 5840836

C. Economy of operations

An organization generally should not incur substantial costs in exchange for slight benefits under its risk management program. By comparing its costs of risk management with other similar organizations, an organization can measure its pre-loss goal of Choose one answer. A. Legality. B. Tolerable uncertainty. C. Economy of operations. D. Social responsibility. ID: 5852941

C. Economy of operations.

All of the following factors are considered when underwriting workers compensation insurance, EXCEPT: Choose one answer. A. Management attitude and capability B. Subcontractors C. Employee gender and marital status D. Cumulative trauma disorders ID: 5844886

C. Employee gender and marital status

Depending on the type of insurance, insurers use automated underwriting systems to Choose one answer. A. Decide accounts with subjective factors. B. Price commercial accounts. C. Encode underwriting guidelines. D. Evaluate producers. ID: 5897633

C. Encode underwriting guidelines

An organization that has adopted an ERM approach monitors risks, threats, and opportunities that arise from a variety of sources. The two important benefits provided by this approach verses traditional risk management are improved risk communication and Choose one answer. A. Centralization of risk ownership. B. Increased focus on transfer of risk. C. Enhanced decision making. D. Increased focus on avoidance of risk. ID: 5853324

C. Enhanced decision making.

A computerized policy entry system that verifies that the zip code entered exists in the United States helps actuaries ensure which one of these data quality characteristics? Choose one answer. A. Accuracy B. Comprehensiveness C. Validity D. Independence ID: 5857739

C. Validity

A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus Choose one answer. A. Costs of goods sold. B. Accounts payable and income taxes. C. Expenses and income taxes. D. Continuing expenses and outstanding liabilities. ID: 5852893

C. Expenses and income taxes

Due to a total fire loss, a retailer moves its business to a temporary location to avoid closing the business. Reimbursement to the retailer for this additional rental expense is covered under which one of the following? Choose one answer. A. Business income B. Legal liability C. Extra expense D. Fire legal liability ID: 5845581

C. Extra expense

Which one of the following statements concerning government insurance programs is true? Choose one answer. A. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices. B. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. D. The federal government provides workers compensation insurance to employers who cannot get it from private insurers. ID: 5847144

C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise.

Every loss exposure has which one of the following elements? Choose one answer. A. Property exposed to loss B. Possibility of direct loss C. Financial consequences of loss D. Tangible asset exposed to loss ID: 5853184

C. Financial consequences of loss

Which one of the following statements is correct regarding internal constraints insurers face? Choose one answer. A. While insurer inefficiency is undesirable, it is not believed to be a factor that leads to insolvency. B. Larger insurers can be more nimble and respond quickly to emerging trends. C. Financial constraints can affect insurers' ability to achieve profit goals. D. The insurance business is relatively simple and does not require specialized expertise. ID: 5846528

C. Financial constraints can affect insurers' ability to achieve profit goals.

George works for a large company and part of his job is to monitor assets according to their liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel prices are having an adverse effect during tight economic markets. If George's concerns were categorized as causes of loss according to the quadrants of risk, his concern most directly relates to which one of the following types of risks? Choose one answer. A. Hazard risks B. Operational risks C. Financial risks D. Strategic risks ID: 5856428

C. Financial risks

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) published what is referred to as COSO II. COSO II, a risk management framework, Choose one answer. A. Is intended for smaller organizations that do not have a board of directors. B. Delves into the details of risk management approaches and processes. C. Focuses on threats to the organization and application of controls. D. Creates specific enterprise-wide risk management (ERM) strategies and treatment techniques. ID: 5853337

C. Focuses on threats to the organization and application of controls.

While developing goals for its book of business, an insurer's staff underwriter decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as Choose one answer. A. Reviewing and revising rating plans. B. Developing underwriting guides. C. Formulating underwriting policy. D. Providing assistance to policyholders. ID: 5843920

C. Formulating underwriting policy.

Probabilities are stated as a decimal figure, a percentage, or a Choose one answer. A. Credibility factor. B. Dollar amount. C. Fraction. D. Stated constant. ID: 5852882

C. Fraction.

Underwriters may encourage insurance to value to provide better policyholder protection against total loss, and to Choose one answer. A. Recognize the effects of depreciation on the property's value. B. Reflect the market value of the property. C. Generate premiums that properly reflect loss exposures. D. Eliminate the coinsurance classes. ID: 5848051

C. Generate premiums that properly reflect loss exposures.

To achieve profitability, the underwriting function serves which one of the following additional purposes? Choose one answer. A. Selecting accounts with a lower-than-average chance of loss B. Charging fair premiums for applications that are accepted C. Guarding against adverse selection D. Transferring the risks of individuals and businesses ID: 5897624

C. Guarding against adverse selection

Which one of the following statements is correct with respect to umbrella liability insurance? Choose one answer. A. Umbrella liability polices provide coverage for gaps in underlying policies, but will not provide coverage when the aggregate limits of the underlying policies have been exhausted. B. Policy language and underwriting rules are standardized among umbrella liability insurers. C. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place. D. Most umbrella liability policies do not contain a deductible or self-insured retention. ID: 5847212

C. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place.

After identifying and analyzing loss exposures and evaluating and selecting the appropriate risk management techniques, the next step in the risk management process is to Choose one answer. A. Monitor the results. B. Revise the risk management program. C. Implement the selected techniques. D. Decide on risk financing techniques. ID: 5840842

C. Implement the selected techniques.

Which one of the following statements is correct regarding the importance of accurate premium audits for insurance rates? Choose one answer. A. Equity requires that insureds presenting similar loss exposures operating in different areas be classified differently. B. Errors in determining the number of exposure units do not distort the rate structure. C. Inaccurate premium audits affect the equity and accuracy of class rates. D. Inaccurate premium audits affect the level of current premium paid, but not future insurance rates. ID: 5847231

C. Inaccurate premium audits affect the equity and accuracy of class rates.

Which one of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures? Choose one answer. A. An ideally insurable loss exposure should be associated with speculative risk. B. One purpose of insurance is to enable the insured to profit from a loss. C. Indemnification is the process of restoring an insured to a pre-loss financial condition. D. If a loss exposure includes the possibility of gain, it is a more desirable risk to insure. ID: 5842785

C. Indemnification is the process of restoring an insured to a pre-loss financial condition.

William has decided to start a small architecture business. He has rented office space, purchased furnishings, and hired four employees. William knows that he needs to purchase insurance before he can open for business, but is not sure what coverages and limits to purchase. Which one of the following insurance distribution systems is most appropriate for William? Choose one answer. A. Internet B. Regional broker C. Independent agent D. National broker ID: 5857434

C. Independent agent

In an Insurance Services Office (ISO) statistical plan, the inception dates on both premium and loss records Choose one answer. A. Provide assurance that the intended premium and loss data were reported, and reported once only. B. Reflect the period of time for which coverage is provided and any losses were paid. C. Indicate which set of statistical plan codes were valid at the inception of the coverage. D. Are used to calculate earned premium from the reported written premium over the policy term. ID: 5857801

C. Indicate which set of statistical plan codes were valid at the inception of the coverage.

Which one of the following statements is correct with respect to the expected cost of losses or gains? Choose one answer. A. The expected cost of gains or losses includes only the direct costs associated with a particular risk. B. Calculating the expected cost of losses or gains for pure risks is more complex than for speculative risks. C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses. D. The expected cost of losses is equal to the uninsured portion of any bodily injury or property damage. ID: 5840790

C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses.

The level of cash flow variability that an organization is willing to accept Choose one answer. A. Is highest for organizations with low risk tolerance. B. Is typically quite easy to determine. C. Is affected by the risk appetite of its stakeholders. D. Is independent of the organization's risk tolerance. ID: 5841774

C. Is affected by the risk appetite of its stakeholders.

Insurer staff in a hard market Choose one answer. A. Has a lower success ratio. B. Find coverage more readily. C. Is likely to increase. D. Is more likely to be replaced by technology. ID: 5899055

C. Is likely to increase.

Which one of the following statements is correct with respect to the U.S. property-casualty insurance market? Choose one answer. A. It is immature. B. It functions perfectly. C. It is cyclical. D. It meets all consumer needs. ID: 5842807

C. It is cyclical.

Which one of the following describes how an effective risk management program should support an organization's pre-loss operational goals? Choose one answer. A. It should ensure that risk management costs are kept to a minimum. B. It should eliminate uncertainty by identifying and managing loss exposures. C. It should help ensure that the organization's legal obligations are satisfied. D. It should ensure that no conflicts exist among the pre-loss goals. ID: 5840833

C. It should help ensure that the organization's legal obligations are satisfied.

Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet? Choose one answer. A. Definite and measurable B. Independent and not catastrophic C. Large number of similar exposure units D. Pure risk ID: 5847134

C. Large number of similar exposure units

As part of its risk management program, a vending company installed a new top of the line security system with an expectation of fewer thefts and Choose one answer. A. Higher expected losses. B. Increased anxiety. C. Less residual uncertainty. D. Increased residual uncertainty. ID: 5919365

C. Less residual uncertainty.

Which one of the following is not a type of insurance but a marketplace such as a stock exchange? Choose one answer. A. Mutuals B. Cooperatives C. Lloyd's D. Reciprocals ID: 5846522

C. Lloyd's

Greg manages a small ski resort. He notes upon reviewing the injury claims he has received that many of them occurred on the same slope. To manage this exposure, Greg widens the slope and reduces the steepness. He believes these changes will reduce the number of injuries. Which one of the following risk control techniques is Greg using? Choose one answer. A. Avoidance B. Separation C. Loss prevention D. Diversification ID: 5853078

C. Loss prevention

Which one of the following is a problem with an individual or organization maintaining high levels of liquidity? Choose one answer. A. Maintaining high levels of liquidity requires a high tolerance for risk. B. Maintaining high levels of liquidity makes it difficult to manage cash flow variability. C. Maintaining high levels of liquidity typically results in a lower rate of return on investments. D. Maintaining high levels of liquidity leads to increased risk control expenses. ID: 5919942

C. Maintaining high levels of liquidity typically results in a lower rate of return on investments.

Which one of the following correctly describes a typical element of an insurance product marketing plan? Choose one answer. A. Production planning determines the procedures involved in actually producing the proposed new product. B. Situational analysis focuses on the company's internal environment and how it will affect the proposed new product. C. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured. D. The product proposal and sales goals focus on detailed sales projections and estimated annual profits from the new product. ID: 5846652

C. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured.

Which one of the following cases illustrates an internal constraint for meeting insurer goals? Choose one answer. A. Etchley Insurance Company received an unfavorable financial rating. B. Gulford Insurance Company received national press coverage for its denial of claims during a recent hurricane. C. Millwright Insurance Company's website is not interactive and does not provide rate quotes on line. D. Fredine Insurance Company, a small regional insurer is able to respond quicker to a local hurricane than a large national insurer. ID: 5897703

C. Millwright Insurance Company's website is not interactive and does not provide rate quotes on line.

Risk professional Alex has assigned a high likelihood to the risk that a competitor will cut prices in the market in which his organization operates. In analyzing this potential risk, Alex decides that if this threat materializes, his organization's strategy will be to launch a marketing campaign that emphasizes his firm's superior product features. This is an example of which one of the following techniques for treating risks to strategy? Choose one answer. A. Avoid B. Transfer C. Mitigate D. Optimize/exploit ID: 5853305

C. Mitigate

Overfitting errors occur in the analysis step of the insurance data life cycle due to which one of the following? Choose one answer. A. Errors in specification requirements. B. Missing values, duplicate records, and mapping errors. C. Models that describe statistical noise rather than a relationship in the data. D. Misinterpretation of data and wrong conclusions. ID: 5857590

C. Models that describe statistical noise rather than a relationship in the data.

A hold harmless agreement is a Choose one answer. A. Risk retention measure. B. Form of liability insurance. C. Noninsurance risk transfer measure. D. Type of risk pooling mechanism. ID: 5841794

C. Noninsurance risk transfer measure.

Juan has a poor driving record and has been unable to obtain auto liability coverage which is mandatory in his state. Since affordability is a concern, Juan wants liability coverage only. Which one of the following is an option for Juan to obtain coverage? Choose one answer. A. Obtain coverage through an independent broker B. Obtain coverage through the state's reinsurance pool C. Obtain coverage through his state's residual market D. Obtain coverage through a risk retention group ID: 5857329

C. Obtain coverage through his state's residual market

What has been the primary influence of investment income on the underwriting cycle in the period from 1978 to 2004? Choose one answer. A. Rounded out peaks and valleys B. Exceeded stock market performance C. Offset underwriting losses D. Increased interest rate income ID: 5844690

C. Offset underwriting losses

Which one of the following types of excess of loss reinsurance is used primarily with liability insurance; applies the attachment point and the reinsurance limit separately to the losses occurring on each insurance policy; and is triggered when a loss on a policy exceeds the attachment point? Choose one answer. A. Per risk B. Aggregate C. Per policy D. Catastrophe ID: 5890139

C. Per policy

Another term for cause of loss is Choose one answer. A. Negative outcome. B. Exposure. C. Peril. D. Hazard. ID: 5853187

C. Peril.

Risk management program goals are typically divided into two categories: pre-loss goals and post-loss goals. Which one of the following describes one of these categories of goals? Choose one answer. A. Pre-loss goals are risk management goals that allow the organization to prepare for future losses. B. Pre-loss goals include profitability, earnings stability, and loss prevention. C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss. D. Post-loss goals include immediate restoration of operations, tolerable uncertainty, and loss mitigation. ID: 5840832

C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss.

Following the 9/11 terrorist attacks, insurers became reluctant to provide property insurance on target properties until the federal Terrorism Risk Insurance Program (TRIP) was introduced. What social goal did this government insurance program achieve? Choose one answer. A. Incentive to purchase insurance B. Pooling C. Prevent economic disruption D. Reduced risk to society ID: 5847141

C. Prevent economic disruption

Which one of the following types of reinsurance is generally chosen by newly incorporated insurers or insurers with limited capital because it is effective in providing surplus relief? Choose one answer. A. Facultative B. Aggregate excess C. Pro rata D. Per risk ID: 5890134

C. Pro rata

Which one of the following is measurable and quantifies risk? Choose one answer. A. Uncertainty B. Possibility C. Probability D. Feasibility ID: 5852902

C. Probability

Pravalt Construction Company pays less than its competitors for workers compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance? Choose one answer. A. Meet legal requirements B. Enable efficient use of resources C. Promote risk control D. Reduce social burden ID: 5855138

C. Promote risk control

While there are many causes of net income losses, net income losses are usually associated with Choose one answer. A. Loss of goodwill. B. Liability losses. C. Property losses. D. Missed opportunities. ID: 5852894

C. Property losses.

Which one of the following is an external constraint insurers contend with that may prevent them from meeting their goals? Choose one answer. A. Financial resources B. Economies of scale C. Public opinion D. Level of expertise ID: 5897600

C. Public opinion

Traditionally, the risk management professional's role has been associated with loss exposures related to Choose one answer. A. Business risk. B. Operational risk. C. Pure risk. D. Speculative risk. ID: 5852916

C. Pure risk.

Which one of the following is recorded in the exposure data element of an ISO general liability statistical plan? Choose one answer. A. Policy limits B. Coverage C. Rating basis D. Type of risk ID: 5857585

C. Rating basis

When selecting a retention for its reinsurance program, the primary insurer must consider the maximum amount that it can retain. This amount is a function of the primary insurer's financial strength and Choose one answer. A. Risk control practices. B. Extracontractual obligations. C. Regulatory requirements. D. Catastrophe potential. ID: 5920112

C. Regulatory requirements.

Which one of the following is a major constraint of underwriting policy? Choose one answer. A. Economy B. Competition C. Reinsurance D. Underwriting management ID: 5897670

C. Reinsurance

Residual uncertainty is the level of risk that remains after organizations implement their risk management plans. Which one of the following statements is correct with respect to residual uncertainty? Choose one answer. A. Residual uncertainty is an objective measure, independent of an organization's subjective view of the risks to which it is exposed. B. The cost of residual uncertainty is relatively easy to calculate and comprises an important part of any cost of risk study. C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved. D. Cost of residual uncertainty is a factor only in the case of speculative risk; it is not a consideration where pure risk is concerned. ID: 5840793

C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved.

Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other reinsurers, known as Choose one answer. A. Direct insurers. B. Ceding reinsurers. C. Retrocessionaires. D. Cedents. ID: 5824609

C. Retrocessionaires.

Which one of the following rating plans adjusts the premium for the current policy period to recognize the insured's actual losses during the current policy period? Choose one answer. A. Experience rating plan B. Guaranteed cost plan C. Retrospective rating plan D. Schedule rating plan ID: 5854571

C. Retrospective rating plan

Which one of the following departments provides information to the underwriting department to assist in selecting and rating risks? Choose one answer. A. Marketing B. Actuarial C. Risk control D. Claims ID: 5857828

C. Risk control

Which one of the following statements is true regarding risk management efforts on the part of individuals, organizations, and society in general? Choose one answer. A. Organizations tend to exhibit a greater degree of risk aversion than do individuals. B. Risk management tends to increase the deterrence effect of risk in organizations. C. Risk management makes those who own or run an organization more willing to undertake risky activities. D. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general. ID: 5852937

C. Risk management makes those who own or run an organization more willing to undertake risky activities.

A producer will generally review a company's loss run report while performing which one of the following functions? Choose one answer. A. Claims handling B. Sales C. Risk management review D. Customer service ID: 5857432

C. Risk management review

The chief risk officer helps the enterprise create a risk culture in which individual department heads and project managers are identified as Choose one answer. A. Strategists. B. Coaches. C. Risk owners. D. Stakeholders. ID: 5853322

C. Risk owners.

Restricting the number of key employees who can travel on the same aircraft is an example of which one of the following risk control techniques? Choose one answer. A. Loss reduction B. Duplication C. Separation D. Diversification ID: 5841385

C. Separation

Warehousing a company's inventory at different locations in different cities is an example of which one of the following risk control techniques? Choose one answer. A. Diversification B. Duplication C. Separation D. Loss prevention ID: 5841366

C. Separation

Insurers use a variety of different methods when setting claim reserves. Which one of the following statements is correct with respect to loss reserves? Choose one answer. A. The preferred method is to set a modest initial reserve, and then raise the reserve by a few thousand dollars to issue payments. B. The individual case method and the roundtable method rely on statistical analysis rather than the claim representative's judgment. C. Setting accurate and adequate reserves is important to an insurer's continued solvency and ability to write new business. D. The accuracy or adequacy of reserves over time generally has little impact on an insurer's ratemaking process. ID: 5890089

C. Setting accurate and adequate reserves is important to an insurer's continued solvency and ability to write new business.

Which one of the following best describes why a group of insurers would choose to form a reinsurance pool, syndicate, or association? Choose one answer. A. To eliminate the need for any of the members to maintain a dedicated reinsurance department B. To avoid purchasing treaty reinsurance C. So that the members can share the loss exposures of the group, usually through reinsurance D. So that the members can deal with a direct writing reinsurer ID: 5819161

C. So that the members can share the loss exposures of the group, usually through reinsurance

Insurer Y is involved in recycling and reusing materials used in policy production and claims handling and reporting. The insurer has also been keenly interested in salvage programs having learned that these programs are better for the environment and more cost-effective for insureds. By participating in these programs and activities, Insurer Y is meeting which one of the following insurer goals? Choose one answer. A. Customer needs goals B. Legal requirements goals C. Social responsibility goals D. Profitability goals ID: 5856995

C. Social responsibility goals

Which one of the following best describes the data elements collected by Insurance Services Office, Inc. (ISO) and other property-casualty advisory organizations for rating or classifying risks? Choose one answer. A. Data elements are the same for all lines of business. B. Data elements are different for each line of business. C. Some data elements are common to most lines of business and some are unique to a particular line. D. Data elements for personal lines are different than those for commercial lines. ID: 5857583

C. Some data elements are common to most lines of business and some are unique to a particular line.

Sub-frameworks exist that are not considered to be enterprise-wide risk management (ERM) frameworks, but that provide specific industries and sectors with guidance. Which one of the following is an example of one of these sub-frameworks? Choose one answer. A. Application of Risk Management to Medical Procedures B. Nuclear Industry- Offshore Production Installations C. Space Systems Risk Management D. Social Security and Human Services Series ID: 5853290

C. Space Systems Risk Management

Which one of the following approaches to global expansion is considered the simplest and carries the lowest degree of risk? Choose one answer. A. Acquisition of a wholly owned subsidiary B. Joint venture C. Strategic alliance D. Merger ID: 5846151

C. Strategic alliance

The combined ratio is the Choose one answer. A. Ratio of an insurer's incurred losses to its written premiums. B. Ratio of an insurer's underwriting expenses to its written premiums. C. Sum of an insurer's loss ratio and its expense ratio. D. Sum of an insurer's loss ratio and its investment income ratio. ID: 5843352

C. Sum of an insurer's loss ratio and its expense ratio.

One of the primary goals of the claim function is Choose one answer. A. Informing producers of court rulings that affect the insurer's loss exposures or pricing. B. Reviewing post-loss evaluations with the underwriting department. C. Supporting the insurer's profit goal. D. Sharing accurate loss information with an insurer's actuarial department. ID: 5845162

C. Supporting the insurer's profit goal.

Merchandise is subject to significant depreciation due to fashion changes, seasonal selling patterns and technological changes. A retail clothing store experiences a fire in September, when all bathing suits are being sold at 50 percent of the original price. In valuing the inventory at actual cash value, Choose one answer. A. Only the actual cost to manufacture bathing suits of like kind and quality would be considered. B. The reduced price is irrelevant because claim settlement is based on cost less depreciation. C. The adjuster should take the reduced listed retail price into consideration. D. The adjuster would take the insured's original costs, less physical depreciation. ID: 5850414

C. The adjuster should take the reduced listed retail price into consideration.

The Wellborn agency represents only Coastal Insurance Company. Wellborn is an independent contractor but its contract with Coastal specifies that all insurance it sells will be placed with Coastal. Wellborn is operating under which one of the following marketing systems? Choose one answer. A. The independent agency system B. The direct writer system C. The exclusive agency system D. The managing general agency system ID: 5846874

C. The exclusive agency system

Diversifying risk is an emerging goal for property-casualty insurers because of Choose one answer. A. A societal trend of increased litigation to recover injury awards. B. The failure of the residual market insurance mechanism. C. The increase in catastrophe losses that have occurred over the past decade. D. Worsening economic conditions. ID: 5857005

C. The increase in catastrophe losses that have occurred over the past decade.

Larissa owns a store specializing in olives and olive oil. Larissa's warehouse suffered a covered fire loss. Although the labels on nearly all the bottles in Larissa's olive warehouse showed water damage, the olives themselves were unaffected. Because Larissa will not sell her olives in a damaged jar, she insists that the olives are a total loss and demands payment in full from her insurer. How would a professional salvage firm be best utilized to help with the challenges of adjusting this claim? Choose one answer. A. A professional salvage firm could be used to dispose of the damaged olives in an environmentally safe way. B. A professional salvage firm could show Larissa how to repackage and sell the damaged merchandise, thereby reducing the amount of the insurance claim while at the same time keeping the insured satisfied. C. The insurer could settle with Larissa for the full value of the olives, and use a professional salvage firm to protect the olives from further damage and to advise about the residual value of the damaged goods. D. The insurer could trigger the policy's appraisal clause and select a professional salvage firm as its appraiser. ID: 5847691

C. The insurer could settle with Larissa for the full value of the olives, and use a professional salvage firm to protect the olives from further damage and to advise about the residual value of the damaged goods.

The senior management team at Primary Insurer must make a decision on how much reinsurance should be purchased and how much risk should be retained. The reinsurance program that senior management selects should reflect the risk tolerance of which one of the following? Choose one answer. A. The reinsurance company B. The insurer's claims adjusters C. The insurer's board of directors D. The reinsurer's stockholders ID: 5917612

C. The insurer's board of directors

Buddy's store is damaged in a fire. He suffers loss of his merchandise as well as loss of income while he replenishes his stock. His direct loss is Choose one answer. A. The loss of income while he replenishes his stock. B. The loss of customers who go to his competitors. C. The loss of his merchandise and damage to the store. D. There is no direct loss in this example. ID: 5847493

C. The loss of his merchandise and damage to the store.

Which one of the following statements is correct regarding the occupancy hazard in property underwriting? Choose one answer. A. Mercantile occupancies are generally low-hazard occupancies with limited risk of significant loss. B. An insured's practices in controlling its hazards does not make a significant difference in the acceptability of an account with combustible contents. C. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility. D. Office occupancy is considered relatively high-hazard when compared to other types of occupancy. ID: 5847038

C. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility.

Which one of the following statements is correct with respect to workers compensation underwriting? Choose one answer. A. Employee morale is generally not a factor considered when underwriting workers compensation insurance. B. The standard workers compensation policy for a contractor specifically excludes coverage for employees of any uninsured subcontractors. C. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites. D. Seasonal employees tend to be better trained and more attentive to work safety than full-time employees. ID: 5847210

C. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites.

George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? Choose one answer. A. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit. B. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht. C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down. D. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal. ID: 5840784

C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.

Which one of the following statements is correct with respect to umbrella and excess liability insurance? Choose one answer. A. Umbrella liability insurance is designed to cover an aggregation of smaller, high-frequency losses. B. While umbrella policies are typically layered, a single excess policy will provide all the increased limits an insured requires. C. The self-insured retention for a commercial umbrella liability policy is usually $10,000. D. Excess liability insurance policies typically offer much broader coverage than do the underlying policies. ID: 5847215

C. The self-insured retention for a commercial umbrella liability policy is usually $10,000.

Underwriting authority requirements are usually communicated to an underwriter through Choose one answer. A. Their underwriting supervisor. B. Their agent's manual. C. The underwriting guidelines. D. Their underwriting management. ID: 5856858

C. The underwriting guidelines.

Which one of the following best describes effective and efficient risk control measures? Choose one answer. A. They are those measures that increase employee satisfaction while reducing the level of risk. B. They reduce risk to a level that is acceptable to the organization's management. C. They are the least expensive measures that achieve an organization's risk management goals. D. They eliminate risk without requiring the organization to make outlays of cash. ID: 5841369

C. They are the least expensive measures that achieve an organization's risk management goals.

Which one of the following statements is correct with respect to marketing plans? Choose one answer. A. Their purpose is to analyze customer spending habits and determine how much consumers might be willing to pay for a product. B. They focus primarily on how a product will be advertised and delivered to potential customers. C. They identify target customers, and the resources and strategies to be used to create, price, promote, and sell the product. D. Their principal use is with new products; they are not effective for marketing existing products. ID: 5846651

C. They identify target customers, and the resources and strategies to be used to create, price, promote, and sell the product.

While designing a display window, Adam, an employee of Mellfor Clothing Store, was injured when he fell from a ladder. Adam's accident was witnessed by several customers and employees. Adam suffered a broken leg and was unable to work for several weeks. Which one of the following represents a hidden cost to the clothing store resulting from Adam's accident? Choose one answer. A. Wages paid to Adam while he is unable to work B. Medical costs paid to Adam C. Time lost by employees who witnessed the accident D. Time lost by customers who witnessed the accident ID: 5853198

C. Time lost by employees who witnessed the accident

Which one of the following statements is correct with respect to risk control measures for net income loss exposures? Choose one answer. A. Measures that control property, liability, or personnel loss exposures are ineffective in controlling net income loss exposures. B. Risk control measures focused on reducing the immediate effect of losses on net income will satisfy risk control needs for long-term impact. C. Two risk control measures that are directly aimed at reducing the severity of net income losses are separation and duplication. D. Diversification is not a viable risk control measure for controlling net income losses. ID: 5841386

C. Two risk control measures that are directly aimed at reducing the severity of net income losses are separation and duplication.

One of the elements of risk is uncertainty. Which one of the following best describes the type of uncertainty that risk involves? A. Uncertainty as to how to manage potential losses B. Uncertainty as to whether a negative outcome is possible C. Uncertainty as to the type and timing of the outcome D. Uncertainty as to whether insurance is available ID: 5840767

C. Uncertainty as to the type and timing of the outcome

Which one of the following statements is true regarding amount subject and probable maximum loss (PML) in evaluating property loss exposures? Choose one answer. A. The amount subject is determined through a precise calculation of the boundaries of a fire division. B. The PML is the underwriter's estimate of the largest loss likely to occur with all fire protection services working. C. Underwriters often use the expression "within four walls" to explain the concept of amount subject. D. Insurer underwriting guidelines are fairly consistent on how to calculate PML for a location. ID: 5857826

C. Underwriters often use the expression "within four walls" to explain the concept of amount subject.

Which one of the following statements is correct with respect to personnel losses arising from the death cause of loss? Choose one answer. A. The existence of life insurance means that death involves speculative risk. B. Because everyone will ultimately die, death is not considered to be fortuitous. C. Unless a disaster occurs, death losses are typically independent and not catastrophic. D. The economic loss due to the death of a key employee is generally quite easily measured. ID: 5842796

C. Unless a disaster occurs, death losses are typically independent and not catastrophic.

Captive insurers are Choose one answer. A. Prohibited from underwriting loss exposures not directly related to the captive's parent or affiliates. B. Typically domiciled in the same jurisdiction as the parent company. C. Used to insure property loss exposures that are difficult to insure in the primary market. D. Not permitted to transfer the financial consequences of insured loss exposures to other insurers. ID: 5841791

C. Used to insure property loss exposures that are difficult to insure in the primary market.

Which one of the following best describes the typical questions an actuary may address regarding the selection of data? Choose one answer. A. What data should be disregarded in setting rates going backward? B. What rates should be used in selecting data going forward? C. What data should be used in setting rates going forward? D. How are the rates assembled going backward? ID: 5857748

C. What data should be used in setting rates going forward?

Jessica has a beach house on the gulf coast which is subject to hurricanes. She has homeowner coverage through Argot Insurance Company. Recently, she obtained coverage through her state wind pool. Which one of the following describes the coverage provided by the windstorm pool? Choose one answer. A. Wind damage from hurricanes paid by the pool B. Wind and flood damage from hurricanes paid by the pool C. Wind damage from hurricanes and other windstorms paid by the pool D. All windstorm losses paid by Argot except windstorm from hurricanes paid by the pool. ID: 5857328

C. Wind damage from hurricanes and other windstorms paid by the pool

Which one of the following is true regarding organizational post-loss goals? Choose one answer. A. The most basic post-loss goal is survival, which means returning the organization to the condition that existed before the loss. B. Social responsibility is a post-loss goal that is unique to not-for-profit and public entities. C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce. D. With a post lost goal of earnings stability, the risk management professional will seek to raise retention levels to minimize the amount spent on risk transfer mechanisms. ID: 5840834

C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce.

Worthley Insurance Company's board of directors wants information about Worthley's current financial position. Which one or the following individuals can best assist the board with evaluating Worthley's financial position? Choose one answer. A. Kenta, manager of investments B. Laura, manager of actuarial services C. Yusuf, manager of accounting and finance D. Patrick, manager of information technology ID: 5897610

C. Yusuf, manager of accounting and finance

Westfork Insurance has a surplus share treaty with Durham Reinsurance and retains a line of $50,000. The treaty contains nine lines. Which one of the following represents that maximum amount of coverage Westfork can write for a single building under the treaty? Choose one answer. A. $50,000 B. $250,000 C. $450,000 D. $500,000 ID: 5890136

D. $500,000 ($50K x9 + $50K from Westfork)

ABC Insurance Company's written premiums are $2,000,000 and its earned premiums are $1,800,000. Losses total $1,000,000, and loss adjustment expenses are $350,000. Which one of the following represents ABC's loss ratio? Choose one answer. A. 50% B. 55% C. 67.5% D. 75% ID: 5846531

D. 75% The loss ratio = incurred losses including LAE / earned premiums. (1,000,000 + 350,000) / 1,800,000 = 75 percent

In addition to complying with the requirements in Actuarial Standard of Practice No. 41 (ASOP No. 41), Actuarial Communications, an actuary's documentation should also include which one of the following? Choose one answer. A. The procedure the actuary considered but did not follow when evaluating the data. B. A description of material attributes the actuary has been told from a questionable source are in the data. C. A description of immaterial inconsistencies the actuary has been told from a questionable source are in the data. D. A description of material defects the actuary believes are in the data. ID: 5857750

D. A description of material defects the actuary believes are in the data.

At a minimum, metadata includes Choose one answer. A. Documentation regarding data quality. B. Process documentation. C. Version tracking. D. A listing of all elements in a database. ID: 5857620

D. A listing of all elements in a database.

Aaron is a claim adjuster for JSP Insurance Company. He has been assigned a business interruption claim submitted by Ione's Quilt Shop. A major fire at the quilt shop caused it to temporarily close. During the investigation, Aaron learns that the shop owner plans to rebuild the shop in a new configuration, very different from the original design. Given this information, which one of the following is the most suitable loss settlement approach? Choose one answer. A. A stated value settlement B. An actual cash value settlement C. An extra expense settlement D. A prospective settlement ID: 5846932

D. A prospective settlement

Which one of the following is correct regarding traditional risk management (RM) verses Enterprise-wide risk management (ERM)? Choose one answer. A. The RM approach establishes a method to gather information organization-wide and develop a framework for analyzing and communicating that information. B. An ERM approach monitors systemic risks inherent in the organization that can adversely affect its quarterly profits and losses. C. The RM approach allows an organization to systematically explore new opportunities for econonmic efficiencies while managing internal and external threats. D. A strong ERM program encourages the buy-in of an organization's stakeholders by establishing management strategies that protect the organization's reputation and assets. ID: 5853798

D. A strong ERM program encourages the buy-in of an organization's stakeholders by establishing management strategies that protect the organization's reputation and assets.

Jancy Insurance Company is a direct writer of workers compensation insurance, operating in two states. Jancy enjoys strong financial ratings and customer loyalty. Jancy consistently meets retention goals and employs an experienced, knowledgeable staff. In recent months, the loss ratio has been deteriorating and new business written is lagging the goal. The management team at Jancy is concerned and has decided to do a SWOT analysis. Which one of the following represents an opportunity for Jancy to increase new business writings, likely to be identified through the SWOT analysis? Choose one answer. A. Strong financial ratings B. Competitors offer more pricing options C. Experienced employees D. Ability to expand into additional states ID: 5856680

D. Ability to expand into additional states

Because claim representatives handle a large volume of claims, which one of the following claim procedures is a crucial record of analyses that occurred on each claim? Choose one answer. A. Access security control B. Automated suspense C. Simple diary D. Activity log ID: 5867406

D. Activity log

The actuary can best help ensure quality in source databases by Choose one answer. A. Correctly coding data. B. Properly processing data inputs. C. Designing software for databases to detect and repair data quality issues. D. Advocating improvements in data management and data quality practices. ID: 5857700

D. Advocating improvements in data management and data quality practices.

Which one of the following is an amount field included in Insurance Services Office (ISO) statistical plans? Choose one answer. A. Reinsurance premiums B. IBNR losses C. Advisory prospective loss costs D. Allocated loss adjustment expense amount ID: 5857799

D. Allocated loss adjustment expense amount

Due to the possibility of an environmental pollution exposure resulting in extensive losses, several insurers in a particular state have joined together to insure the exposure because no single insurer was willing to insure the entire risk. This insurance arrangement is typical of Choose one answer. A. A cooperative. B. A reciprocal exchange. C. An insurance exchange. D. An insurance pool. ID: 5856985

D. An insurance pool.

Which one of the following statements is true regarding traditional risk management (RM) verses enterprise-wide risk management (ERM)? Choose one answer. A. Both RM and ERM focus on pure risk. B. RM considers the risk that the organization will outperform its strategic goals. C. ERM focuses only on pure risk, while RM does not. D. ERM emphasizes the interrelationships between pure and speculative risk. ID: 5853308

D. ERM emphasizes the interrelationships between pure and speculative risk.

Which one of the following statements is correct with respect to applying risk control techniques to the various types of loss exposures? Choose one answer. A. Separation, duplication, and diversification are the most effective risk control techniques for treating liability loss exposures. B. Risk control techniques to reduce a liability loss once it occurs are generally not available. C. The most cost-effective risk control techniques for personnel loss exposures are those aimed at causes of loss that occur outside the workplace. D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures. ID: 5852997

D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

Which one of the following personal loss exposures generally meets all of the characteristics of an ideally insurable loss exposure? Choose one answer. A. Net income loss B. Flood damage C. Health loss D. Automobile liability ID: 5919943

D. Automobile liability

To support their current ratings, well-managed and highly rated insurers typically must maintain which one of the following levels in excess of the minimum amounts required? Choose one answer. A. Policyholder surplus levels B. Claim reserve levels C. State guaranty fund levels D. Capitalization levels ID: 5856987

D. Capitalization levels

Specialty insurers such as those offering surety bonds, aviation insurance, and livestock mortality insurance usually Choose one answer. A. Extend underwriting authority to producers. B. Refer those lines to senior underwriters. C. Use automated underwriting systems. D. Centralize underwriting authority. ID: 5898870

D. Centralize underwriting authority.

Considering profit cycles and the operating environment of various insureds can be useful to insurance professionals. Which one of the following best describes the force that dominates the profit cycle of manufacturing and retailing businesses? Choose one answer. A. Geographical spread of the market B. Supply of raw materials to the market C. Competition in the market for sales D. Changes in the demand for their product ID: 5844143

D. Changes in the demand for their product

Tania, an underwriting trainee for Keithly Insurance Company, has received a new homeowners application for Nanami. The home is to be insured for $150,000. It is a frame house with a swimming pool and trampoline in the back yard. The grass needs mowing and the shrubbery needs trimming. Nanami has a marginal credit score. What is Tania's first step in underwriting the policy for Nanami? Choose one answer. A. Determine whether the credit score is acceptable. B. Check the underwriting guidelines on the pool and trampoline. C. Contact the agent about the upkeep problem. D. Check to see if she has the underwriting authority to make the decision. ID: 5897668

D. Check to see if she has the underwriting authority to make the decision.

Once an underwriter has evaluated a submission, selected and applied any appropriate modifications, and determined the premium, the next step is to implement the underwriting decision. To implement the decision, the underwriter should first Choose one answer. A. Issue a binder and prepare certificates of insurance. B. Record data about the applicant and the policy. C. Prepare and issue an invoice to the insured. D. Communicate the decision to the producer. ID: 5889997

D. Communicate the decision to the producer.

Walter, a commercial underwriter, is evaluating a CGL application for MedConstruct, a construction company. MedConstruct specializes in building hospitals, nursing homes, senior citizen residences, medical clinics, and related types of buildings. The company has been in business for fifteen years and has a very good reputation. The company has grown rapidly and has had some difficulty in hiring sufficient qualified employees to keep up with its heavy schedule. Management is concerned about on-the-job safety and, so far, the company has a reasonably good record when it comes to employee injuries. To which one of the following loss exposures will Walter devote more attention when evaluating this risk? Choose one answer. A. Premises liability loss exposure B. Premises medical payments liability loss exposure C. Products liability loss exposure D. Completed operations liability loss exposure ID: 5847184

D. Completed operations liability loss exposure

Outliers found using which one of these data analysis tools should be compared to the metadata to determine valid data elements? Choose one answer. A. Method to identify missing data B. Box and whisker plot C. Descriptive statistics D. Data cube ID: 5857738

D. Data cube

Bill is an insurance producer for ABC Insurance Company (ABC). He represents only ABC when marketing insurance products. ABC compensates Bill primarily through salary, and he has no ownership rights to policy expirations. Bill is a producer in the Choose one answer. A. Independent agency marketing system. B. Exclusive agency marketing system. C. Captive agency marketing system. D. Direct writer marketing system. ID: 5843765

D. Direct writer marketing system.

When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? Choose one answer. A. How quickly can inquiries and transactions be processed in the channel? B. Are customers willing to pay a premium for personalized products and services through the channel? C. What are customers' expectations regarding accessibility to the channel? D. Does the selected channel capitalize on its core capabilities? ID: 5843803

D. Does the selected channel capitalize on its core capabilities?

Pro rata reinsurance is the appropriate choice when which one of the following is the main concern related to a primary insurer's rapid growth? Choose one answer. A. Catastrophic events B. Large line capacity C. Loss ratio instability D. Drain on policyholders' surplus ID: 5920108

D. Drain on policyholders' surplus

A manufacturer relies on supplies of a key raw material which it obtains from a particular supplier. The manufacturer makes arrangements with a second supplier to provide the raw material if the primary supplier is unable to do so. The manufacturer is practicing which one of the following risk control techniques? Choose one answer. A. Diversification B. Recovery planning C. Separation D. Duplication ID: 5841367

D. Duplication

Which powerful adjustment tool is written, signed, and sworn to by the insured, yet not often used by property adjusters? Choose one answer. A. Examination under oath B. Inventory report C. Books and records inspection D. Proof of loss ID: 5850392

D. Proof of loss

Which one of the following is true regarding enterprise-wide risk management (ERM)? Choose one answer. A. ERM is an approach to risk management that focuses primarily on loss exposures associated with pure risk. B. In practice, implementation of ERM occurs at the departmental or business unit level. C. Implementation of ERM is fairly consistent among organizations, regardless of their size, nature, or complexity. D. ERM is an approach to managing all of an organization's key risks and opportunities. ID: 5852057

D. ERM is an approach to managing all of an organization's key risks and opportunities.

The state advisory organization has developed a new homeowner's form which increases the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance Company is considering modifying the form for its own use. Which one of the following members of Jancy's staff would be involved in the research and development of this new form? Choose one answer. A. Merve, the claims manager B. Antonia, the accounting manager C. Clara, the underwriting manager D. Emma, the staff underwriter ID: 5897632

D. Emma, the staff underwriter

Tania receives an application for homeowner's insurance for a home valued at $500,000 from Patrick, the producer for Keithly Insurance Company. Since Tania's underwriting authority is $350,000 on property risks, she must refer it to Lachlan, her underwriting supervisor. Which one of the following additional functions for underwriting profitability does this case illustrate? Choose one answer. A. Guarding against adverse selection B. Ensuring adequate policyholder surplus C. Prevention of errors and omissions D. Enforcing underwriting guidelines ID: 5897628

D. Enforcing underwriting guidelines

An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is Choose one answer. A. Who is the target market? B. Is the expertise of the current staff adequate? C. Does cost outweigh the benefit? D. How quickly can inquiries and transactions be processed? ID: 5843801

D. How quickly can inquiries and transactions be processed?

Which one of the following is an example of a common hazard relating to premises and operations liability loss exposures? Choose one answer. A. Poorly maintained underground storage tanks B. Improperly stored explosives C. Forklift trucks with no warning lights D. Inadequate housekeeping ID: 5844424

D. Inadequate housekeeping

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be Choose one answer. A. A large number of similar exposure units. B. Definite and measurable. C. Fortuitous. D. Independent and not catastrophic. ID: 5847135

D. Independent and not catastrophic. (Because many properties can be damaged in the same hurricane or tropical storm, coastal properties are not independent and potential losses are catastrophic)

Which one of the following statements is correct with regard to the various users of claim information? Choose one answer. A. The three primary departments that receive claim information are purchasing, underwriting, and actuarial. B. Post-loss evaluation is not important for underwriting management because claim adjusters alert underwriters to any negative trends. C. In order to project the development of open claims and establish reserves for IBNR claims, actuaries need paid losses, but not losses that are on reserve. D. Individual underwriters are interested in claim information for the specific accounts they have underwritten. ID: 5844930

D. Individual underwriters are interested in claim information for the specific accounts they have underwritten.

Which one of the following statements is correct regarding property claims? Choose one answer. A. Once an insured has notified the insurer of a property loss, the insurer must immediately take measures to prevent further damage. B. If an insured engages a public adjuster, the insurer may refuse to handle the claim and require the insured to work with the insurer to adjust the claim. C. After a loss, the insured must determine the cause of loss and submit it for the insurer's approval, with the assistance of experts if required. D. Insurers rarely require an examination under oath, but when they do it is usually because they suspect the policyholder of fraud. ID: 5845000

D. Insurers rarely require an examination under oath, but when they do it is usually because they suspect the policyholder of fraud.

Which one of the following statements is correct? Choose one answer. A. Insurers are prohibited from investing in social projects. B. Insurance provides a source of investment funds for insurers but not for policyholders. C. Insurers cannot invest premium income because it must be available to pay claims. D. Insurers' investment income helps keep premiums at a reasonable level. ID: 5847929

D. Insurers' investment income helps keep premiums at a reasonable level.

Which one of the following best represents a way collaboration technology can be used to share metadata within an organization? Choose one answer. A. Spreadsheets B. Word processing C. Printed documents D. Intranets ID: 5857618

D. Intranets

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? Choose one answer. A. Buying a new personal vehicle B. Purchasing an insurance policy C. Acquiring a new television D. Investing in shares of stock ID: 5840779

D. Investing in shares of stock

What may allow an insurer to lose money on underwriting operations for several years yet remain in business? Choose one answer. A. Service charges B. Loss reserves C. Unearned premiums D. Investment income ID: 5844839

D. Investment income

Which one of the following focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of a building? Choose one answer. A. Building code B. Environmental security C. Workers compensation D. Life safety ID: 5841372

D. Life safety

Which one of the following will draft a manuscript policy or endorsement that is worded to address the specific needs of the insured? Choose one answer. A. Underwriting supervisor B. Staff underwriter C. Producer D. Line underwriter ID: 5897630

D. Line underwriter

Which one of the following lists the financial components used to calculate a combined ratio? Choose one answer. A. Loss and loss adjustment expenses incurred, investment earnings, and earned and written premiums B. Loss and loss adjustment expenses incurred, IBNR losses, and earned and written premiums C. Unearned premium reserves, earned and written premiums, and loss and loss adjustment expenses incurred D. Loss and loss adjustment expenses incurred, earned and written premiums, and underwriting expenses incurred ID: 5846890

D. Loss and loss adjustment expenses incurred, earned and written premiums, and underwriting expenses incurred

Which one of the following risk control techniques is primarily used to reduce the frequency of losses, although it may also mitigate loss severity? Choose one answer. A. Separation B. Duplication C. Diversification D. Loss prevention ID: 5841364

D. Loss prevention

Which one of the following common risk financing goals is most significantly influenced by an organization's tolerance for risk? Choose one answer. A. Maintain an appropriate level of liquidity B. Comply with legal requirements C. Pay for losses D. Managing cash flow variability ID: 5919953

D. Managing cash flow variability

The development of sales goals and projected outcomes is part of which one of the following marketing activities? Choose one answer. A. Sales fulfillment B. Market development C. Advertising and promotion D. Marketing plan ID: 5857437

D. Marketing plan

Which one of the following is the goal of enterprise-wide risk management (ERM)? Choose one answer. A. Coordinate loss reduction efforts B. Reduce risk management costs C. Decentralize control of business decisions D. Maximize the organization's value ID: 5852058

D. Maximize the organization's value

The insurance industry is highly regulated, and the expense associated with compliance can be substantial. To the extent that these expenses increase the cost of insurance, they create a conflict between the insurer's profit goal and the insurer's goal of Choose one answer. A. Diversifying risk. B. Fulfilling its duty to society. C. Dealing with the insured in utmost good faith. D. Meeting customers' needs. ID: 5897431

D. Meeting customers' needs.

Which one of the following statements is correct with respect to risk transfer measures? Choose one answer. A. The majority of risk transfer measures are pure transfers. B. Risk transfers shift the transferor's legal responsibility for paying a loss to the transferee. C. Risk transfer measures tend to increase the variability of cash flow making an organization less attractive to investors. D. Most risk transfer measures limit the potential loss amounts being transferred. ID: 5841780

D. Most risk transfer measures limit the potential loss amounts being transferred.

ABC Insurance Company is organized by geographic regions and has departmental operations within each region. Which one of the following best describes ABC's organizational structure? Choose one answer. A. Functional structure B. Operational structure C. Flat organizational structure D. Multidivisional structure ID: 5897757

D. Multidivisional structure

Daniel is an insurance underwriter with over twenty years of experience. He has worked with reinsurers, surplus lines brokers, retention plans, and various captive arrangements. With which one of the following customer groups is Daniel most likely working? Choose one answer. A. Individuals B. Small businesses C. Middle markets D. National accounts ID: 5857410

D. National accounts

Which one of the following formulas calculates the return on equity? Choose one answer. A. Net investment income divided by earned premiums B. Incurred losses divided by written premiums C. Net investment income divided by unearned premiums D. Net income divided by owners' equity ID: 5856993

D. Net income divided by owners' equity

Which one of the following statements is correct regarding net income loss exposures? Choose one answer. A. Net income losses caused by the business environment represent pure risk. B. Net income losses resulting from liability losses are measurable because the timing and duration of the loss are definite. C. Net income losses resulting from liability losses are insured by a variety of business income coverages. D. Net income loss exposures associated with property losses exhibit almost all the characteristics of ideally insurable risks. ID: 5842798

D. Net income loss exposures associated with property losses exhibit almost all the characteristics of ideally insurable risks.

Liability policies cover insureds for compensatory damages an insured owes to a third party. Compensatory damages normally covered by the policy include Choose one answer. A. Punitive Damages and legal expenses. B. Damages from deceitful or malicious acts of an insured. C. General damages within the policy limit and all special damages. D. Pain and suffering and out-of-pocket expenses claimed up to the policy limit. ID: 5847496

D. Pain and suffering and out-of-pocket expenses claimed up to the policy limit.

Which one of the following statements is correct with respect to the characteristics of premises and operations liability loss exposures? Choose one answer. A. Because organizations profit from their operations, premises and operations liability loss exposures involve speculative risk. B. Premises and operations liability losses typically arise from an insured's negligence, so they cannot be considered to be fortuitous. C. Given the large number of retail stores in the U.S., the premises and operations liability loss exposure is potentially catastrophic. D. Premises and operations liability losses are definite in time, cause, and location, and are measurable. ID: 5842794

D. Premises and operations liability losses are definite in time, cause, and location, and are measurable. (Premises operations liability satisfies all characteristics of ideally insurable characteristics)

Which one of the following financial ratios is key for evaluating insurer solvency? Choose one answer. A. Retention ratio B. Loss ratio C. Expense ratio D. Premium to surplus ratio ID: 5897671

D. Premium to surplus ratio

Which one of the following statements is correct with respect to property loss exposures? Choose one answer. A. Many organizations do not have property loss exposures related to their business operations. B. All property fire losses are fortuitous and involve pure risk. C. Windstorm losses are ideally insurable because they are independent and not catastrophic. D. Premiums for flood insurance may not be economically feasible, depending on location. ID: 5842792

D. Premiums for flood insurance may not be economically feasible, depending on location.

Daniel has developed a business continuity plan to address the threat of the loss of utility services at his company's large manufacturing plant. The management team has reviewed his plan and agrees that the plan can be quickly read and understood and should be effective in the event of a crisis. Daniel has provided copies of the plan to all relevant parties. Which one of the following should be Daniel's next step? Choose one answer. A. Locate a backup manufacturing site B. Develop a business recovery and restoration plan C. Perform a cash flow analysis D. Provide training and periodic rehearsals of the procedures ID: 5858139

D. Provide training and periodic rehearsals of the procedures

Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer? Choose one answer. A. Interactive web sites B. Direct mail C. Cold canvass D. Referrals from present clients ID: 5857419

D. Referrals from present clients

Summary-based statistical plans are primarily used for Choose one answer. A. Actuarial pricing. B. Extension of exposure adjustments. C. Loss reserve determinations. D. Regulatory reporting. ID: 5857714

D. Regulatory reporting.

The executive team of a primary insurer decides to become a third-party administrator of claims. This is an example of which one of the following types of corporate-level strategy? Choose one answer. A. Single business B. Vertical integration C. Harvest D. Related diversification ID: 5846142

D. Related diversification

Retailers often sell products that are manufactured elsewhere but carry their store label. Which one of the following is the best way for a retailer to make sure that it will be indemnified by the product's manufacturer? Choose one answer. A. Keep accurate records of the sole date of purchase for all products. B. Include warnings and instructions with all products. C. Make sure that the manufacturer has quality-control checks built in to the manufacturing process. D. Resell the product in the same condition and packaging in which it left the manufacturer. ID: 5849518

D. Resell the product in the same condition and packaging in which it left the manufacturer.

Which one of the following statements is correct with respect to residential property loss exposures? Choose one answer. A. Residential homes are tougher to group into classes that face the same loss potential than commercial property loss exposures. B. Residential losses caused by flood are usually neither definite nor measurable. C. Residential property loss exposures associated with windstorm are ideally suited to insurability. D. Residential property loss exposures associated with fire, windstorm, and flood involve a large number of similar exposure units. ID: 5842800

D. Residential property loss exposures associated with fire, windstorm, and flood involve a large number of similar exposure units.

Which one of the following represents two nonfinancial measures that are used to evaluate underwriting performance by focusing on underwriting actions? Choose one answer. A. Loss ratio and quote ratio B. Combined ratio and success ratio C. New business ratio and retention ratio D. Retention ratio and hit ratio ID: 5846891

D. Retention ratio and hit ratio

Which one of the following types of personal loss exposures is not usually fortuitous? Choose one answer. A. Liability loss exposures B. Life loss exposures C. Health loss exposures D. Retirement loss exposures ID: 5842803

D. Retirement loss exposures (This is planned, fortuitous loss must be accidental/unexpected)

The most widely-known risk management technique used by individuals is Choose one answer. A. Retention, that is, paying for the losses they incur. B. Risk control. C. Maintenance. D. Risk financing by purchasing insurance. ID: 5840791

D. Risk financing by purchasing insurance.

Catastrophe bonds are used to Choose one answer. A. Hedge the price of commodities. B. Retain the risk of catastrophe losses. C. Raise cash at prearranged terms after a loss occurs. D. Securitize insurance risk through a marketable security. ID: 5841795

D. Securitize insurance risk through a marketable security.

Alexis has inherited a family cottage that she has insured with Millstone Insurance for $100,000. One weekend while Alexis is at the cottage, a fire starts in the night. The cottage is a total loss. Alexis calls her insurance agent who reports the claim to Millstone. The claim is assigned to Victor, a property claim representative. After entering the information from the notice of loss into Millstone's claim-processing system, which one of the following will Victor most likely do? Choose one answer. A. Verify whether any exclusions apply B. Advise the agent that the policy is in force C. Verify that Alex owns the cottage D. Set preliminary loss reserves ID: 5890175

D. Set preliminary loss reserves

Alex, a premium auditor for Keithly Insurance Company, has received a workers compensation audit form which his insured completed for the prior year. He notes the payroll has been greatly decreased since the last audit. Which one of the following functional areas of Keithly can assist Alex with this audit's irregularity? Choose one answer. A. Accounting and finance B. Risk control C. Human resources D. Special investigation unit ID: 5897609

D. Special investigation unit

Which one of the following dimensions of organizational data quality is represented when responsibility for managing data has been assigned? Choose one answer. A. Sharing B. Interpretation C. Timeliness D. Stewardship ID: 5857742

D. Stewardship

Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss would be classified as a(n) Choose one answer. A. Hazard risk. B. Operational risk. C. Financial risk. D. Strategic risk. ID: 5880544

D. Strategic risk.

Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of Choose one answer. A. Hazard risk. B. Operational risk. C. Financial risk. D. Strategic risk. ID: 5856435

D. Strategic risk.

Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate? Choose one answer. A. An example of a nondiversifiable risk is a fire. B. An example of a diversifiable risk is inflation. C. Risks must be either diversifiable or nondiversifiable. D. Systemic risks are generally nondiversifiable. ID: 5856426

D. Systemic risks are generally nondiversifiable.

Which one of the following terms is used to identify the property ownership of a husband and wife? Choose one answer. A. Ownership in common B. Custodian ownership C. Security interest D. Tenancy by entirety ID: 5850384

D. Tenancy by entirety

Risk involves the possibility of a negative outcome. Possibility means Choose one answer. A. The likelihood of an event occurring. B. That an outcome is unavoidable. C. An identified and predictable outcome. D. That an outcome may or may not occur. ID: 5840768

D. That an outcome may or may not occur.

Which one of the following statements is true regarding measures of potential loss severity for property loss exposures? Choose one answer. A. The amount of insurance carried on a property location is the most useful figure for determining potential loss severity. B. The amount subject to a single loss at a location is consistent for all causes of loss to which the location is exposed. C. The amount subject should be determined separately for each policy an insurer writes within a single fire division. D. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent. ID: 5857812

D. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent.

Which one of the following statements is correct with respect to premises medical payments coverage? Choose one answer. A. It pays medical expenses for insureds injured by the policyholder's premises or operations. B. It requires that the policyholder be legally liable for the injured party's injury. C. The limits for medical payments coverage are typically $25,000 to $50,000. D. The coverage can be excluded by endorsement, but this is rarely done. ID: 5847176

D. The coverage can be excluded by endorsement, but this is rarely done.

William and Sara are business continuity managers in the same urban area. William works for a supermarket chain, while Sara was just hired by an accounting firm. As part of their job responsibilities, they have just started preparing a new business continuity plan for their respective employers. Which one of the following factors should lead to differences between the risk evaluation sections of the plans being prepared by William and Sara? Choose one answer. A. The necessity of testing and modifying the business continuity plan at regular intervals B. The extent to which cost-effective methods of crisis mitigation should be used C. The possibility of disgruntled customers causing reputational damage D. The extent to which a loss of electrical power could impact business ID: 5889745

D. The extent to which a loss of electrical power could impact business

Which one of the following statements is true regarding the financial consequences of loss? Choose one answer. A. The financial consequences of any loss can be established immediately after the loss occurs. B. The financial consequences of a loss are independent of any hazards that may have contributed to the loss. C. The financial consequences of future losses cannot be predicted with any degree of certainty. D. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity. ID: 5840777

D. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity.

Sally and her husband Bill own a saddle shop that has been in Sally's family for generations. Because of the sentimental value of the shop, they have invested a great deal in loss-prevention devices and safety features to ensure the survival of the business. This tendency to over-invest in loss-prevention measures creates the risk that Choose one answer. A. Too much emphasis is being placed on maximum earnings in any one period rather than stability of earnings over time. B. Risks that should be transferred are being retained. C. The risk management techniques selected are not the best ones for the saddle shop. D. The financial value of the saddle shop is not being maximized. ID: 5852960

D. The financial value of the saddle shop is not being maximized.

One of the first determinations a claim representative must make is whether or not the person involved in a loss is covered. In order for an individual to be covered under a property insurance policy, all of the following conditions must apply, EXCEPT: Choose one answer. A. The individual must suffer a financial loss as a result of a covered occurrence. B. The individual must fall within the definition of "insured" under the policy. C. The individual must have an insurable interest in the damaged or destroyed property. D. The individual must provide the systematic framework for coverage to the claim representative. ID: 5822761

D. The individual must provide the systematic framework for coverage to the claim representative.

Which one of the following best describes the need for data in the insurance business? Choose one answer. A. The insurance business has the same data needs as other businesses. B. Regulatory and business needs for insurance data rarely change. C. One insurer's experience typically provides sufficient data to determine the cost of future coverage for a policy type for that specific insurer. D. The insurance business is unique in its need for data because the final cost of insurance coverage is not known until many years after policies expire. ID: 5857699

D. The insurance business is unique in its need for data because the final cost of insurance coverage is not known until many years after policies expire.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: Choose one answer. A. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents. B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters. C. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily. ID: 5858524

D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

An underwriter is comparing workers compensation submissions on two accounting firms, Firm A and Firm B. Each firm employs roughly 350 employees. Firm A occupies two floors in a prominent high rise building in a major metropolitan area. Employees are not required to travel. Firm B, located in the same metropolitan area, has multiple offices spread throughout the city to facilitate client visits. Housekeeping and maintenance hazards are similar among the firms. Firm A poses a greater single loss exposure due to Choose one answer. A. Higher employee turnover rates for single location firms. B. The fact that loss experience is typically higher for single location firms. C. The special hazards associated with the accounting firm classification. D. The potential for many injuries or deaths resulting from a single incident. ID: 5848062

D. The potential for many injuries or deaths resulting from a single incident.

Which one of the following statements is correct regarding the relationship between risk control and claims? Choose one answer. A. The claim department has its own technical resources and rarely relies on the risk control department for expertise. B. While the details of individual losses are useful to risk control representatives, frequency and severity data by line of business are rarely used. C. While risk control representatives carefully review property claims, they rarely examine liability or workers' compensation losses. D. The risk control department needs claim experience information to direct loss-control resources and efforts to crucial areas. ID: 5897751

D. The risk control department needs claim experience information to direct loss-control resources and efforts to crucial areas.

An external constraint that insurers face is competition. An insurance industry market cycle characterized by decreasing prices and increasing competition is Choose one answer. A. The economic market cycle. B. The hard market cycle. C. The protracted market cycle. D. The soft market cycle. ID: 5843337

D. The soft market cycle.

Which one of the following is the most important reason that the transferor in a risk transfer agreement assess the financial strength of the transferee? Choose one answer. A. Most risk transfer measures involve some type of limitation on the potential loss amount being transferred. B. There are often disputes about whether a loss falls within the transfer agreement's scope. C. Risk transfer measures are usually a combination of retention and transfer. D. The ultimate responsibility for paying for loss remains with the transferor in a risk transfer agreement. ID: 5854572

D. The ultimate responsibility for paying for loss remains with the transferor in a risk transfer agreement.

Which one of the following describes the purpose of the analysis step in the insurance data life cycle? Choose one answer. A. To collect data and satisfy statistical reporting B. To make data available to users in the necessary format C. To help management make right decisions D. To extract useful information from raw data ID: 5857604

D. To extract useful information from raw data

Which one of the following is the primary business purpose of a professional reinsurer? Choose one answer. A. To offer reinsurance to affiliated insurers B. To create pools so that groups of insurers can share the loss exposures of the group C. To create a syndication of reinsurance intermediaries D. To serve insurers' reinsurance needs ID: 5857804

D. To serve insurers' reinsurance needs

Which one of the following is a risk financing technique? Choose one answer. A. Separation B. Diversification C. Loss prevention D. Transfer ID: 5852955

D. Transfer

A key characteristic that distinguishes finite risk reinsurance from other types of reinsurance is that finite risk reinsurance Choose one answer. A. Places a finite limit on each occurrence. B. Includes a profit-sharing commission in addition to a flat ceding commission. C. Applies above a finite dollar amount or line. D. Transfers a limited amount of risk to the reinsurer. ID: 5814304

D. Transfers a limited amount of risk to the reinsurer.

Julio and Emily are both equally good drivers with clean records, and they drive similar cars. When they marry, Emily adds Julio to her personal auto policy and cancels his old policy. Now that Julio has been added to Emily's policy, the potential loss severity of an accident involving Emily's car is Choose one answer. A. Correlated. B. Decreased. C. Increased. D. Unchanged. ID: 5847117

D. Unchanged.

Which one of the following statements is correct with respect to factors considered in underwriting personal automobile insurance? Choose one answer. A. All insurers' underwriting guides distinguish drivers on the basis of their occupations. B. Auto modifications made to accommodate a driver with physical impairments usually make a risk undesirable. C. Insurers typically do not allow rate discounts for vehicles with safety features such as antilock braking or side air bags. D. Underwriters often use consumer investigation reports to determine the personal characteristics of drivers. ID: 5847202

D. Underwriters often use consumer investigation reports to determine the personal characteristics of drivers.

The underwriter must evaluate each underwriting alternative carefully and select the optimal one under the circumstances. Which one of the following is true regarding the selection of an alternative? Choose one answer. A. Underwriters should avoid evaluating all lines of business from an applicant as a whole. B. Underwriters should look for reasons to reject submissions. C. Underwriters should decline accounts they expect will have losses. D. Underwriters should ensure that accepting a submission supports the insurer's goals for mix of business. ID: 5889996

D. Underwriters should ensure that accepting a submission supports the insurer's goals for mix of business.

Taunton General Contractor (TGC) is covered by a workers compensation insurance policy. As the general contractor for a construction project, TGC hires Cintriell Plumbing (CP) as a subcontractor. Which statement about this relationship is true? Choose one answer. A. Because subcontractors are ineligible for coverage under the general contractor's workers compensation policy, TGC must purchase separate workers compensation insurance to cover CP's employees. B. TGC must request an endorsement to its workers' compensation policy to provide workers compensation coverage to CP's employees. C. Under most states' workers compensation statutes, TGC will not be held responsible for workers compensation benefits to employees of CP. D. Unless CP has workers compensation insurance, TGC's workers compensation premium should include a charge for CP's employees because TGC's policy will automatically provide coverage for them. ID: 5845374

D. Unless CP has workers compensation insurance, TGC's workers compensation premium should include a charge for CP's employees because TGC's policy will automatically provide coverage for them.

Smith's Bakery is a mid-sized regional company that specializes in producing bread from a variety of organic grains. It sells its products through grocery stores as well as through its own chain of retail outlets. As a result of experiencing problems with the quality and quantity of organic grains available, the corporate management team decides to purchase a number of farms locally, convert them to organic operations, and manage them directly. Smith's is able to eliminate suppliers in the process and deliver quality products for sale. Which one of the following methods has Smith's employed in producing its own grains? Choose one answer. A. Related diversification B. Harvest strategy C. Turnaround strategy D. Vertical integration ID: 5846288

D. Vertical integration

Which one of the following statements is correct with respect to premium audits? Choose one answer. A. There is no strictly defined procedure for premium audits, and individual auditors may consider different factors during an audit. B. Policyholders are required to present accounting information and other data to the auditor in the specified form required by the manual rules. C. Workers compensation insurance is the one line of commercial insurance that is rarely subject to premium audit requirements. D. When a policy is written subject to audit, the exact exposure and premium bases cannot be known until the end of the policy period. ID: 5897752

D. When a policy is written subject to audit, the exact exposure and premium bases cannot be known until the end of the policy period.

Which one of the following statements is correct with respect to insurance for crimes committeed by others? Choose one answer. A. Because crime can occur anywhere, the location of an item is not a consideration when underwriting this coverage. B. It is especially important with this coverage that the limits selected reflect full insurance to value. C. Coverage for crimes committed by others is generally subject to a deductible and a coinsurance clause. D. When evaluating loss exposures, underwriters consider an item's susceptibility to being stolen and its marketability. ID: 5847062

D. When evaluating loss exposures, underwriters consider an item's susceptibility to being stolen and its marketability.

As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point? Choose one answer. A. Ciara finds it difficult to come up with a $787 auto insurance premium every six months. B. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance. C. When her car's transmission goes out a month after the warranty expires, Ciara is faced with a $1,100 repair bill. D. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. ID: 5847007

D. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it.

Obtaining agreement on repair prices and accurately calculating constructive total losses are key tasks for an auto property damage adjuster. When is a vehicle considered a constructive total loss? Choose one answer. A. When the cost to repair the vehicle exceeds 80 percent of the vehicle's actual cash value before the loss B. When the cost to repair the vehicle minus the deductible equals or exceeds the vehicle's pre-loss value C. When the cost to repair the vehicle exceeds the vehicle's actual cash value before the loss D. When the cost to repair the vehicle plus its remaining salvage value equals or exceeds the vehicle's pre-loss value ID: 5849515

D. When the cost to repair the vehicle plus its remaining salvage value equals or exceeds the vehicle's pre-loss value

While negotiating to settle claims is a key responsibility of liability claim representatives, the insurer must have the right to litigate to protect itself against frivolous, fraudulent, or unfounded claims. When does the insurer have the legal obligation to settle? Choose one answer. A. When the insured makes a formal request to settle to avoid trial B. When the legal expenses exceed the proposed settlement C. When the defense attorney recommends settlement D. When the value of the claim approaches or exceeds the insured's policy limits ID: 5849510

D. When the value of the claim approaches or exceeds the insured's policy limits

State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers? Choose one answer. A. Crop B. Flood C. General liability D. Workers compensation ID: 5847142

D. Workers compensation

Leah decides to purchase her personal automobile insurance through a program offered by her employer. Leah's employer offers her a discounted premium which is deducted from her paycheck. Leah's employer is using which type of distribution channel? Choose one answer. A. Affinity marketing B. Direct response marketing C. Mass marketing D. Worksite marketing ID: 5843790

D. Worksite marketing

Which one of the following is a claim control used to help meet regulatory compliance? a. Access security b. Structured settlements c. Special damages d. Annual Statements

a. Access security

Pivot tables are an example of which one of these data quality tools or techniques? a. Data cubes b. Descriptive statistics c. Box and whisker plots d. Method to identify missing data

a. Data cubes

Return on equity influences the underwriting cycle because a. When the majority of insurers raise rates to generate higher returns, the cycle turns. b. Mutual insurers are a significant segment of the industry. c. Capacity is reduced when return on equity is reduced. d. Expansion increases return on equity which thereby decreases capacity.

a. When the majority of insurers raise rates to generate higher returns, the cycle turns.

At year-end, a property casualty insurer had a combined ratio of 111.8, and an investment income ratio of 10.2. What is the insurer's overall operating ratio for the year? a. 100.4 b. 101.6 c. 106.0 d. 122.0

b. 101.6

Richley Insurance Company's CEO Delmond has called his staff together concerning increasing premiums in several states. Which one of the following suggestions could Javiera, Richley's premium audit manager, offer as a solution? a. Premium audits could be discontinued. b. Premiums developed by audit positively impact state premiums. c. Deposit premium prevents collection problems. d. Premium audits property classified are an efficient management of cash.

b. Premiums developed by audit positively impact state premiums.

An insurer that targets large middle-market and national accounts would most likely use which one of the following distribution systems? a. Exclusive agent b. Internet c. Broker d. Direct

c. Broker

Which one of the following approaches to global expansion has the benefit of providing a low-risk approach to quickly entering a new market? a. Joint venture b. Merger c. Strategic alliance d. Wholly owned subsidiary

c. Strategic alliance

Which one of the following is correct regarding major risk management frameworks and standards? a. A purpose of Basel II is to promote confidence in the financial stability of the insurance sector. b. COSO II applies only to U.S. public companies subject to securities laws. c. A purpose of Basel II is to ensure that capital allocation is more risk sensitive. d. Solvency II was established as an international standard for the banking industry.

c. A purpose of Basel II is to ensure that capital allocation is more risk sensitive.

When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? a. How quickly can inquiries and transactions be processed in the channel? b. Are customers willing to pay a premium for personalized products and services through the channel? c. What are customers' expectations regarding accessibility to the channel? d. Does the selected channel capitalize on its core capabilities?

d. Does the selected channel capitalize on its core capabilities?

Which one of the following statements is correct with respect to the characteristics of premises and operations liability loss exposures? a. Because organizations profit from their operations, premises and operations liability loss exposures involve speculative risk. b. Premises and operations liability losses typically arise from an insured's negligence, so they cannot be considered to be fortuitous. c. Given the large number of retail stores in the U.S., the premises and operations liability loss exposure is potentially catastrophic. d. Premises and operations liability losses are definite in time, cause, and location, and are measurable.

d. Premises and operations liability losses are definite in time, cause, and location, and are measurable.

Which one of the following methods employed by an organization demonstrates the use of an enterprise-wide risk management (ERM) approach improving decisions and promoting economic efficiency? a. The organization retains loss associated with its core operations. b. The organization avoids operating in states that are prone to natural disasters. c. The organization employs loss reduction techniques in its diversified operations. d. The organization builds supply chain resilience into its operational model

d. The organization builds supply chain resilience into its operational model